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Definition of Insurance

Regarding the Definition of Insurance. Insurance is a term used to refer to an action, system, or business where financial protection (or financial compensation) for life, property, health and so on is reimbursed from unforeseen events that can occur such as death, loss , damage or illness, which involves regular premium payments over a certain period of time in exchange for a policy that guarantees such protection.


Insurance language which in English comes from the word 'Insurance' is an agreement where we pay a certain amount of money to a company and the company will pay some money as dependents to us if we have an accident or misfortune. The term "insured" usually refers to anything that is covered.


Definition of insurance according to experts

Definition of insurance according to Prof. Mehr and Commack, insurance is a tool to reduce financial risk by collecting exposure units in sufficient numbers, to make individual losses predictable. Then the predictable loss is borne evenly by those who are members.

Definition of insurance according to Prof. Mark R. Green defines insurance as an economic institution that aims to reduce risk by combining in a management a number of objects that are large enough in number so that the overall loss can be predicted within certain limits.

The definition of insurance according to Insurance in Law No. 2 of 1992 concerning the insurance business is an agreement between two or more parties, by which the insurer binds himself to the insured, by receiving insurance premiums, to provide compensation to the insured due to loss, damage or loss of profit. expected or third party legal liability that the insured may suffer, arising from an uncertain event, or providing a payment based on the death or life of the insured person.

The entity that transmits the risk is called the "insured", and the entity that accepts the risk is called the "insurer". The agreement between these two bodies is called a policy: it is a legal contract that defines each protected term and condition. The fee paid by the "insured" to the "insurer" for the risk covered is called the "premium". This is usually determined by the "insurer" for funds that can be claimed in the future, administrative costs, and profits.

For example, a couple buys a house for Rp. 100 million. Knowing that losing their home will lead to financial ruin, they take out insurance coverage in the form of a home ownership policy. The policy will pay for the replacement or repair of their homes in the event of a disaster. The insurance company pays them a premium of IDR 1 million per year. The risk of losing the house has been passed from the homeowner to the insurance company.

Basic principles of insurance

In the world of insurance there are 6 basic principles that must be met, namely:

Insurable interest The right to insure, which arises from a financial relationship, between the insured and the insured and is legally recognized.

Utmost good faith An action to accurately and completely disclose all material facts about something to be insured, whether requested or not. This means: the insurer must honestly explain clearly everything about the extent of the terms/conditions of the insurance and the insured must also provide clear and correct information on the object or interest insured.

Proximate cause An active, efficient cause that gives rise to a chain of events that gives rise to an effect without the intervention of someone starting and actively from a new and independent source.

Indemnity A mechanism whereby the insurer provides financial compensation in an effort to place the insured in the financial position he had just before the loss occurred (KUHD articles 252, 253 and emphasized in article 278).

Subrogation Transfer of claim rights from the insured to the insurer after the claim is paid.

Contribution The right of the insurer to invite other insurers who share the same, but not necessarily the same obligation to the insured to participate in providing indemnity.

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