Understanding Insurance

Life is full of unexpected risks or unexpected, because of that we need to understand about insurance. Some natural events that occurred in recent years and takes a lot of casualties, both fatalities and property, such as reminding us of the need for insurance. For every member of society including the business world, the risk for experiencing disadvantage (misfortune) are always there (Kamaluddin: 2003). In order to overcome the losses, people develop a mechanism that we now know as insurance.

The primary function of insurance is as a mechanism to transfer risk (risk-transfer mechanism), which shift the risk from one party (the insured) to another party (the insurer). Transfer of risk is by no means eliminates the possibility of misfortune, but the insurer to provide financial security (financial security) and tranquility (peace of mind) for the insured. In return, the insured pays a premium in a very small number when compared with potential losses that may be suffered (Morton: 1999).

Basically, the insurance policy is a contract that is a legal agreement between the insurer (in this case the insurance company) with the insured, whereby the insurer willing to cover some losses that may arise in the future in return for payment (premium), some of the insured.