More or less, insurance acts as a protector or insurer that provides protection for both your financial condition and the object you insure. Then, what is the purpose of insurance? Well, if you want to understand more about insurance before buying it, see the full explanation.
General Insurance Purpose
After understanding what insurance is, you also need to know the purpose of the existence of insurance companies and products. Then, what is the real function and purpose of insurance?
In general, insurance aims to provide protection for customers from risks that may occur in the future, and free customers from the obligation to bear these risks, which could be beyond their capabilities.
Insurance has 4 main objectives that will continue to be implemented in ensuring protection for its customers. You can find an explanation of the purpose of insurance, including health insurance, sharia, pension funds, and so on in a PDF paper.
1. Insurance for Risk Transfer
The first, insurance aims as a transfer of risk. When a person becomes aware of a threat or danger to his property or life, he naturally seeks refuge. If one day the danger really afflicts his property or life, he will experience a loss and must bear a financial burden that may be beyond his ability.
The purpose of insurance is to reduce or eliminate the financial burden. Where when the customer experiences a danger that causes the loss, the Insurer will transfer the risk from the customer. This risk transfer starts from the premium payment to the insurance company from the customer. If until the end of the insurance period there is no harm, then the accumulated premium can be a profit for the insurance company.
2. Insurance for Indemnity
The next goal is to pay compensation, which can apply to all types of insurance including health, fire, vehicle, and life. Payment of compensation is made by the Insurer when a situation occurs that causes a loss to the Insured, in which the party no longer bears the compensation or risk. Losses that arise can be partial and not all of them are total losses.
3. Insurance as Compensation Payer
Insurance also provides protection in the form of compensation if at any time a loss occurs which causes the Insured to die. The compensation will be paid by the insurance company or the Insurer and received by the heirs who have been previously appointed by the Insured when buying insurance. The amount of compensation given is usually listed in the insurance policy.
4. Insurance for Member Welfare
Lastly, insurance has a goal to prosper its members. Usually this purpose is in the type of insurance used in the association, where the association will function as the Insurer, while the member of the association serves as the Insured. The way it works is similar to a cooperative, if there is an event that results in loss or death for a member (the Insured), then the association (the Insurer) will pay a sum of money to the member.
This goal is in line with insurance that uses sharia principles, which do not aim to get large profits. The purpose of sharia insurance is to seek profit by increasing the welfare and struggle of the people. In accordance with the vision and mission it carries, namely aqidah, worship, iqtisadi, and ummah.
Insurance Benefits
With these insurance principles and main goals, you will know that there are many benefits that we can take from having insurance. Starting from the benefits in general even to more specific benefits, aliases can only be felt if you buy certain insurance.
For example, when you buy special insurance for a house or property, then you can feel the benefits of protection for the house as one of the assets that is considered quite valuable. What are the benefits of insurance that we can feel after buying it? There are 4 main benefits, including:
1. Giving Calm
With the benefits of protection from the risk of uncertainty, insurance can certainly make policyholders feel safe and calm. Because, you don't need to worry anymore about the risks that might occur because the insurer is already financially borne. Insurance is also believed to be able to increase the confidence of the Insured.
Therefore, if you are a person who has the possibility of experiencing a large risk of loss from unexpected events, having insurance can minimize it easily. But if you are not easily exposed to risk, insurance can be a guarantee of risks that might occur in the future.
2. Investment and Saving
Insurance can also be useful as a form of investment, because it provides protection against things that you think are very important and risks giving you a financial burden. You will also get an insured refund guarantee at the end of the contract, so it can be an alternative means of saving too.
In general, the policyholder's coverage period can have three terms, namely 5, 7, and 10 years. Customers can get back the funds that have been insured within that period.
3. Minimize Losses
Basically, insurance helps policyholders to minimize losses from unexpected events that may occur. Such as the cost of fire losses, accidents, and hospital costs. The insurance company will cover some or all of the total cost of the loss that you have to bear, so you can be free from worries about financial burdens.
4. Help Manage Finances
Having insurance turns out to be very useful to help manage finances, you know. Because, when you have insurance, you are required to pay premiums regularly, so you indirectly have to get used to setting aside funds for these purposes. Having insurance can also help you reduce unexpected expenses which are usually much higher than routine daily expenses or even monthly expenses. Because, you do not need to pay the full cost of the loss because it has been borne by the insurance company.
Once you know the purpose of insurance, of course you are no longer confused in determining the direction in the future.
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