Know the Functions and Purposes of Insurance

Know the Functions and Purposes of Insurance | Insurance is an agreement that occurs between the customer and the insurance company. The content of the agreement is that the insurance company is willing to bear a certain amount of money loss due to something in the future after the customer agrees to the payment of money (premium). Insurance is of several types and each has the same general insurance purpose. These types of insurance include life insurance, accident insurance, loss insurance, and there is also fire insurance.


Premiums or money paid by customers is usually much smaller when compared to the natural losses that will be experienced by customers if certain events occur. Many insurers require their customers to pay premiums once a month, but some insurers receive varying premium payments. The amount of premium deposited also varies depending on the type of insurance and the insurance company. But usually, the small amount of premiums that must be paid is calculated based on a premium rate multiplied by the value of coverage.


The following are the functions and objectives of insurance that will probably increase your knowledge about insurance and further solidify your intention to insurance.


Insurance Function


The following are the main functions of insurance:


Risk Switching


This risk transfer means that the risk will be transferred to the insurance company as the insurer. So that the amount of uncertainty of losses suffered by customers due to an unexpected event will be replaced by the insurance in the form of compensation or claim compensation because the customer has paid a premium.


Fund Raising


Funds sourced from customers will be collected and then by the insurance company, the fund will be managed in such a way that it can develop. The proceeds from managing money from customers will be used to pay compensation if the customer experiences unexpected and adverse events.


Premium Balancing


The insurance company will arrange for the premium payment to be balanced with the risk that will be borne by the insurance. Thus both parties will not feel aggrieved by the agreement. For in addition to life insurance, the number of premiums will be determined based on the premium rate multiplied by the desired coverage value. For life insurance, the amount of premiums is usually by the agreement or determination of the insurance company.


The additional function is as a means for saving investment funds, preventing losses, and minimizing losses. In addition, insurance is also useful to stimulate economic growth so that business increases.


Insurance Purpose


Insurance has several purposes, including as a guarantee to customers to be protected from the risks that will be suffered in the event of unexpected events. Insurance can also increase efficiency against something, customers do not need to make various security and supervision efforts because it will consume a lot of time and effort.


The purpose of insurance is the equalization of costs, the meaning is that the customer will only incur certain costs and does not need to pay the losses suffered because the insurance company will bear it. This is certainly very profitable for customers because the amount of losses suffered is not certain.

Life insurance has a very noble insurance purpose, namely customer savings. This is because the amount to be received will certainly be much greater than the amount of premium paid. But unfortunately, this goal only applies to life insurance.

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