Get to know the function of insurance and its benefits for a calmer life
In an effort to build a stable and prosperous life, insurance is an important foundation in supporting better management and planning of one’s finances. Insurance functions to help someone anticipate and minimize the financial impact of various life risks that can occur at any time, for example the risk of losing a job or source of income, health risks, or those related to a favorite hobby. By having insurance, it is hoped that personal financial management can run more optimally.
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What is the function of insurance and its benefits?
Get to know several insurance functions and their benefits as follows:
1. Primary Function
Basically, insurance is a financial service product that offers risk transfer services so that the main function of insurance is to transfer risk from the Insured to the Insurer. When you buy certain insurance from an insurance provider company, it means you have transferred the risk of life to that company. For this service, you are required to pay a premium to the insurance provider. The benefits you get from purchasing this insurance are that the life risks you have are borne by the insurance provider company. Another primary function of insurance is to provide coverage whose premium price can be adjusted to the amount of protection benefits required. Policyholders do not have to pay expensive fees to get adequate insurance protection. For example, to be able to get health insurance protection of up to IDR 200 million, someone does not have to pay that amount, but only needs to pay a premium of a smaller value. Apart from that, insurance also functions as a collector of funds from policy holders. This collection of funds is used by insurance to carry out its main function as a risk transfer service through claim payments. When there is a claim from the policy holder, the funds will be used by the insurance provider to help cover the expenses incurred
2. Secondary Function
As part of the financial industry, insurance plays a role in supporting a country’s economic growth. When people realize the benefits and have insurance, the quality of people’s finances will be better because they already have protection. The circulation of funds in insurance will also help encourage growth in the financial sector which can ultimately contribute to Gross Domestic Product (GDP). Quoting data from the Central Statistics Agency (BPS), GDP from the financial services and insurance sector in the fourth quarter of 2022 reached IDR 809.3 trillion. This figure is equivalent to a contribution of 0.08% to Indonesia’s 2022 GDP which will reach IDR 19,588.4 trillion.
3. Special Function
Based on the type, insurance can be differentiated in more detail so that someone can know the type of insurance they need according to their financial condition. There are two main insurances that everyone needs to understand, as follows:
Health Insurance
Health insurance provides protection for costs that may arise due to illnesses and diseases that require medical expenses or that disrupt the continuity of a person’s income. When there is a risk of illness and disease, it is not uncommon for your expenses to become very large due to the costs of treatment at the hospital. For sudden and emergency expenses, emergency funds from savings may not be sufficient to cover them. This is because medical costs are often very large, especially if someone has a serious or critical illness. The main function of insurance is to manage these risks, you can have health insurance according to your needs. Financial risks that arise due to illness and disease tend to be unpredictable and their value can be very large. However, this can be minimized by having insurance. For example, someone buys health insurance with a protection value of up to IDR 150 million a year with a premium cost of IDR 1.5 million per month. Thus, expenses related to the risk of illness have been limited to IDR 1.5 million per month.
Also Read: Health Protection until the Insured is 110 years old.
Life insurance
Life insurance provides protection from financial risks that arise when the breadwinner dies. Life insurance or protection is not about death, but rather how the family left behind can continue their life by minimizing financial risks in the future. When there is no longer any income because the breadwinner is gone, the emergency fund will have limited resources to replace it. This is where life insurance has an important role to provide a certain amount of insurance funds to the heirs (family) which can be used as provisions for continuing life.
By understanding the importance of the insurance function, both life insurance and insurance. You can choose the type of protection that suits your conditions. Once you have adequate protection, you don’t need to worry about risks that may occur in the future.