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Definition of Insurance: Elements, Functions, and Types

Elements, Functions, and Types

Definition of Insurance

Insurance is a form of agreement between two parties, namely the Insured and the Insurer, in which the Insured pays a contribution to the Insurer in order to obtain a form of compensation for financial risks that may occur unexpectedly.

In the context of a modern world, the Insurer means the existing insurance company, while the Insured is the customer.

Definition of insurance according to experts

“Insurance is an agreement between two parties, namely the insurance company and the policyholder, which is the basis for receiving premiums by the insurance company in return for:

provide compensation to the insured or policy holder due to loss, damage, costs incurred, loss of profit, or legal liability to third parties that may be suffered by the insured or policy holder due to the occurrence of an uncertain event; or

provide payments based on the death of the insured or payments based on the life of the insured with benefits whose amount has been determined and/or based on the results of fund management.”

What are the elements of insurance?

Insurance has 3 main elements, namely insurance premiums, insurance policies, and insurance claims.

  1. Insurance premiums are fee contributions that must be paid by customers during the agreed period of time. Usually premiums can be paid on a monthly, semi-annual or annual basis.
  2. Meanwhile, the insurance policy is a legal document that regulates the insurance agreement. Starting from the value of benefits, the amount of premiums, the risks covered, to exceptions (risks that are not covered by insurance). Insurance policies are legal and legally binding. If there is a party that violates the policy rules, then the other party has the right to stop cooperation or even sue that party.
  3. An insurance claim is an official submission process to an insurance company when a customer experiences a risk covered by an insurance policy. If an insurance claim is made in accordance with the provisions stated in the policy, the insurance company will provide a sum of money as compensation for the financial risk experienced by the customer.

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