Why Insure Yourself, Family, and Your Property?

InsuranceWorld -

InsureYourself, Family, and Your Property -, have done? If not, must be caused because you still do not understand the notion of Insurance, as well as the function and purpose of insurance follow.

Therefore, to open your horizons about the importance of insurance, the following will describe our understanding of insurance, benefits, and goals for insurance.

Definition of Insurance

In countries - developed countries like the U.S. and various countries in other parts of Europe, the majority of people already have the awareness of the importance of insurance, without having offered any so they'll find your own insurance products are suitable for them. Conversely, in countries - developing countries, awareness of people about the importance of insurance has not been too precedence.

Insurance is a system that is applied to minimize the risk of financial loss by passing the risk on one party to another. In the process of purchasing insurance insurable interest is required.  insurable interest can be defined as an inherent interest of an insured person in a life insurance so that if an insured person is experiencing an unexpected or died, then the interested parties (in this case is the injured party with the death of that person) will received some compensation enough to be used as compensation.

Examples of parties who have insurable interest is as follows:

Ø Husband and Wife. Both have insurable interest because they are both bound in a marriage relationship is valid under applicable law.

Ø Parents and Children. Both parties have insurable interest because of blood relations.

Ø Keyman of Company is the people - people who play a very important role in a company when until the person dies, then the company will suffer substantial losses. In this case the parties who have insurable interest is a company where Keyman of company work.

People who buy insurance whether it be life insurance, health insurance or other insurance products are required to pay a sum of money each month are referred to as a monthly premium. Some people think that paying a premium equal to throwing money in vain because it does not look real benefits. Actually, the assumption was wrong because it actually benefits the total sum insured that will be received far greater than the sum of premiums paid.

The purpose of insurance

Each insurer must have the benefit, and in general the benefits of insurance are:

1.      Provide a guarantee of protection from the risks of losses to one party.

2.      Improve efficiency, because it does not need to specifically hold the security and supervision to provide protection that takes a lot of energy, time and cost.

3.      Risk Transfer: By paying a relatively small premium, a person or company can move the uncertainty of life and property (risk) to the insurance company

4.      Equitable cost, which is enough to pay a certain amount and do not need to replace / pay for their own losses and the amount does not necessarily uncertain.

5.      The basis for the bank to extend credit because banks require collateral for collateral protection provided by the borrower money.

6.      As the savings, because the amount paid to the insurance will be returned in greater numbers. This is specially true for life insurance.

7.      Loss of Earning Power shut down a person or business entity.

Insurance Function

Insured will be more serious, so do not be late paying the premiums, if we understand the function of insurance.

The function of insurance is divided into three, namely:

1)      Function Main (Primary Function)

2)      Additional functions (Subsidiary Function)

3)      Related Functions (Associate Function)

Primary Function

Primary function of insurance is the provision of Risk Transfer Mechanism (risk transfer mechanism) via a tool or a way common pool, where each policyholder pays premiums to a fair and balanced (Equitable premiums), in accordance with the level of risk of loss of coverage is brought into the pool.

A. Risk Transfer Mechanism (Risk Transfer Mechanisms)

• Individuals or entities may assign / transfer a portion of the uncertainty of a risk to other parties.
• Pay a premium that is relatively very small compared to the losses that are likely to face.
• Uncertainty on: "There or not there is a loss" and "How big losses in the event"

B. The Common Pool

• Insurance of ships in ancient times

1.        The merchants agreed give contribution to those who suffer losses.
2. Contributions given after the loss occurs (in contrast with the premium).

2.        This practice is not completely divert the uncertainty of the cost of losses, but merely to minimize losses.

3.        Merchants who do business through the cruise line is protected from total loss, but it will face their own losses can not be known in advance before the occurrence of loss.

• In the modern insurance practice

1.      Contribution is set at the beginning of the contract in the form of premiums.

2.      Shares in losses for that year was known in advance.

3.      From year to year will vary greatly, depending on the prediction of the claims in the future year.

4.      Prerni of those insured by the insurer collected into a fund  or the pool to the same risks.

5.      Claims are paid withdrawn from the fund collected earlier.

6.      Claims that comes from loss of motor vehicle payment withdrawn from the fund collected from motor vehicle premiums as well. Similarly with the other.

7.      Because a lot of the insured amount in each fund or the pool, then the insurer will be able to estimate at a good level of accuracy of the magnitude of the claims in the coming year.

8.      There will be variations on the cost of claims from year to year.

9.      There is an element in the premium reserve with a small margin, is intended to be used in bad years.

10.  Thus, the insured no longer burdened contribution losses in the event of a claim (of course menyesuakan with restrictions and the extensive collateral purchased by the insured)

C. Equitable premiums

• Contribute to the premiums paid into the fund should be fairly deducted to the insured.

• The level of risk of each object: the coverage is included in the pool (funds) are different:

v The house of wood> <Houses of concrete

v The driver USIS 18 th> <Motorists aged 35 years

v Workers factory> <office workers

v Private cars> <Cars taxi / commercial

• The level of risk include:

- Hazard

- Value (Value)

• The premium consists of elements:

- Claim (Claim Costs)

- Cost of Administration

- Backup (Contingency Loading)

- Profit Margin

• Premiums should be competitive so as not to lose business.

Additional Functions

A. Stimulus to Business Enterprise (Encouraging the growth of the business world)
Changing the function of the fund (fund) the unproductive and channel them into investments in the form of a productive business development efforts.

v Without insurance, the company / factory, medium size and above may need to establish reserves (reserve) for Emergencies (emergency) that puts the future of business on the possibility to walk on the hazards.

v Backup is certainly great value and if invested outside (externally) with a condition that can quickly liquid, the relative rate of return will small.

v With insurance, the cost (fixed cost) for a relatively small premium.

v Reserves can be designated in the release and distributed for internal investment through business development, for example, for machinery, buildings or stock material for increased production.

Security:
Ø In small companies, insurance is the main alternative in sustaining

Ø efforts of the possibility of occurrence of loss. Because of limited funds available.

Ø In a larger company will provide confidence for executives in the face of possible losses.

Ø They will be able to concentrate more on the actual function to run a proper business.

Ø They can concentrate on the production sector do the risks of trade without the burden of concern will not achieve the target business because of fire or risks insured.

Ø In the economic situation of a healthy and robust insurance markets available to him a well-organized
Ø Mehr don Cammack: Britain as a great trading nation sound fire insurance facilities at the same period.

International trade also stimulated / encouraged by insurance, as marine cargo policy is one of the documents essential to the exporter / seller in asking for bills of exchange, thus will be able to melt the LC immediately, rather than money (funds) are stored (bound in the bank) in connection with cargo still on the high seas.

B. Loss Prevention (Prevent loss)

C. Loss Control (Controlling losses)

D. Social Benefits (social benefits to the community)

E. Savings (Savings - Life Assurance)

By understanding the meaning of insurance, function and benefits of insurance, hopefully to encourage you for insure.