Insurance as a Means of Risk Control

In a world with full of uncertainty, one way that can help and protect us from risk is Life Insurance. Insurance is one form of risk control which done by way of transfer of risk from one party to the other party in this case is the insurance company. Life insurance is manage risk by moving the impact the loss of an individual to a group and share the losses experienced by the individual to all members of the group. Let us to remember the basic understanding about Insurance that may be helpful in planning your finances better.

1. Understanding about insurance
Insurance is a transfer of risk from the first party to another party. Controlled by the delegation of legal rules and the application of the principles and teachings that are universally adhered to by the first party or other parties. In terms of economics, insurance is a collection of funds that can be used to cover or pay compensation to people who suffered losses.

2. Benefits of Insurance
Besides as a form of risk control (financially), insurance also has a variety of benefits that are classified into: the main function, secondary functions and additional functions. The main function is as a transfer of insurance risk, premium collection and fund balance. Secondary function of insurance is to stimulate business growth, prevent loss, damage control, social benefits and the savings. While as an additional function, insurance as an investment fund and invisible earnings.

3. Are all risks can be insured?
Not all risks can be insured. Risks that can be insured among other: the risk that can be measured by money, the risk of homogeneous (the same risks and enough guaranteed by insurance), a pure risk (this risk is not profitable), particular risk (the risk of individual sources), the risk that occur suddenly (Accidental), insurable interest (the insured has an interest in the object insured) and the risks that are not contrary to law.

4. Asset Definition
Asset is anything which has a trading value or economic value. An asset can be tangible (visible, for example: cars, houses, land, a cow, plant, etc.) or intangible (can not be seen, for example: the talent and abilities). Insurance business aimed at protecting the economic value of these assets.
Human life is a very valuable asset that can bring in revenue. These assets also face risks such as death, illness or disability caused by accident. Risks such as disability and death make a person unable to earn income. This resulted in the parties that depended on him, such as family difficulties.

5. Disaster and Risk
Flooded, sick, hit by another vehicle, earthquakes, landslides, deaths and other unfortunate examples. Damage or destruction that may be caused by the disaster is a risk that owned by assets. Understanding ‘risk’ in the insurance or the means of the possibility of loss or destruction of uncertainty faced by an ‘asset’ that can cause economic losses.

Insurance Principles

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

1. Insurable interest
The right to insure, arising from a financial relationship, between the insured with the insured and recognized by law. In accordance with the purpose of life insurance, each person is considered to have insurable interest in his own, including their partners and family life.

2. Utmost good faith
In a contract, generally each party involved can learn the product and the subject of the contract. But in life insurance, which is a product / subject is the life of someone. Only a insured parties understand all the risks associated with him. It is the task of the insurer and the insured parties to implement in good faith among one another. The insurer must honestly explain everything clearly about the extent of the terms / conditions of insurance and the insured must also provide a clear and correct for objects or interests of the insured.

3. Proximate cause
is a cause of active, efficient chain of events that led to led to a result without the intervention of the start and actively from a new source and independent.

4. Indemnity
A mechanism which provides financial compensation insurer in an attempt to place the insured in a financial position that he had just before the occurrence of losses.

5. Conditional
Life insurance contracts have a requirement. Insurer parties bound  promises to pay compensation if certain requirements are met.

6. Unilateral
Life insurance contract is essentially unilateral. Only one side, the person who has a legal promise that must be implemented. The insured party can not be legally forced to pay the premium.

7. Aleatory
If the insured dies after paying a one-time premium, the heirs will receive full compensation (the number is likely much larger than the one-time premium) In contrast, insurance companies can earn more than the premiums rather than cash compensation should be paid.

8. Personal
Life insurance contract is personal. Someone must be insurable interest in himself, but others may not have an insurable interest in that person. Thus, the life insurance contract can not be transferred to others.

9. Valued
Under the insurance contract, insurer agreed to pay some compensation when losses occur. Sums paid to these beneficiaries may or may not have a relationship with the quantitative amount of losses resulting from the death of the insured.