Main Functions of Insurance Apart from Protection – As we know, as a non-bank financial institution that bears the risk of customers. Insurance serves to protect its customers from various risks that occur.
Well, apart from these functions, it turns out that insurance has 3 main functions that we must know. What are the 3 main functions? Here’s the answer.
Main Functions of Insurance
Risk Transfer Mechanism
The first main function of insurance is as a risk transfer mechanism. The risk transfer mechanism in question is the transfer of risk from the customer for the unexpected to the insurance company.
Upon the transfer of risk, the customer’s liability arises in the form of premium payments to the insurance company. The premium must be deposited with the insurance company. For example, a customer buys a life insurance policy. For the transfer of risk, the customer must pay a premium to the insurance company.
Raising Funds (The common pool)
From the premium payment, insurance has another function, namely the function of raising funds or the common pool. Due to premium payments from customers, the insurer will receive the deposit every month based on the policy.
Then the insurance company will collect the funds. And redistribute funds to customers in the form of insurance benefit claims. In this case, insurance acts like a financial institution in general.
Balance between claims and premiums
Every customer who buys an insurance policy wants the benefits of the policy they buy. When the risk occurs, the customer can make a claim. This is related to the third main function of insurance, namely the balance function between claims and premiums.
The insurer must ensure that claims and premiums are balanced. Therefore, to determine the amount of premium that must be deposited by the customer. The insurance company performs calculations and analyzes the risks and benefits that will be obtained by the customer.
The goal is that customers get a premium amount that is balanced with the claims or benefits that they will feel if a risk occurs.
Insurance Functions by Type
In addition to having a main function, insurance also has a function based on its type. Health insurance serves to provide guarantees or protection to customers against the risk of health problems.
These health problems include various diseases that may occur in the future. The benefits provided include medical expenses, hospitalization, and doctor’s consultations.
Education insurance is a type of insurance that serves to guarantee the education costs of children from kindergarten to college age. This type of insurance usually uses advance planning to determine the amount of the premium.
Benefits that can be felt in the form of being free from the cost of children’s education according to the agreement.
Travel insurance is a type of insurance that functions to provide guarantees or protection for someone while traveling. This type of insurance is suitable for customers who have high mobility both domestically and abroad.
The benefits of travel insurance are in the form of medical expenses in the event of health problems during the trip, compensation for lost goods, and so on.
Loss insurance provides benefits in the form of guarantees to minimize risks that occur in the customer’s property or assets. This type of insurance will provide benefits in the form of compensation as stated on the policy.
Life insurance is a type of insurance that serves to guarantee customers from the risk of death financially in the form of sum assured which will later be given to their heirs.