Life is full of unexpected risks or unexpected, because of that we need to understand about insurance. Some natural events that occurred in recent years and takes a lot of casualties, both fatalities and property, such as reminding us of the need for insurance. For every member of society including the business world, the risk for experiencing disadvantage (misfortune) are always there (Kamaluddin: 2003). In order to overcome the losses, people develop a mechanism that we now know as insurance.
The primary function of insurance is as a mechanism to transfer risk (risk-transfer mechanism), which shift the risk from one side (the insured) to another party (the insurer). Transfer of risk is by no means eliminates the possibility of misfortune, but the insurer to provide financial security (the financial security) and tranquility (peace of mind) for the insured. In return, the insured pays a premium in a very small number when compared with potential losses that may be suffered (Morton: 1999).
Basically, the insurance policy is a contract that is a legal agreement between the insurer (in this case the insurance company) with the insured, whereby the insurer willing to cover some losses that may arise in the future in return for payment (premium), some of the insured.
According to Law No. 2 Year 1992, which referred to insurance or coverage is an agreement between two parties or more, by which the parties committed themselves to the insurer the insured, by accepting the insurance premiums to provide reimbursement to the insured for losses, damages or lost profits that are expected, or legal liability to third parties that may be suffered by the insured, arising out of an uncertain event, or to provide a payment based on a person dies or lives insured.
In order for a loss of potential (which may occur) can be covered by insurance (insurable) it must have the following characteristics: 1) the loss of uncertainty, 2) losses should be limited, 3) the loss must be significant, 4) the ratio of losses can be unpredictable and 5) the loss is not catastrophic (disaster) for the insurer.
The question arises; death is definitely something, why be insured? Although it is something that contains a certainty, but at what precise moment when the death of a person outside the control of the TSB. So the time of the death scene that really contain the uncertainty is what causes it insurable.
There are two forms of agreement in determining the payment amount at maturity of insurance, namely: the contract value (valued contract) and Indemnity contract (contract of indemnity). The contract value is an agreement whereby the amount of payment has been determined in advance. For example, the value of Sum Assured (UP) on life insurance. Indemnity contracts are agreements in which the number santunannya based on the amount of actual financial loss. For example, the cost of hospital care.
In the case of insurance companies try to reduce any possible losses of fatal / major, it can shift the risk to other insurance companies. This is called reinsurance, reinsurance companies that accept named reinsurers.