[Part 2] Let Us Know The Basics of Insurance

Insurance marketer, usually called insurance agent or financial consultant, is an unpopulair profession in Indonesia. The most of people lack an understanding of insurance issues, especially outside the developed countries. It related with majority of people are relatively low level of education and high rate of poverty so that this issue received less attention except among the educated and middle to upper social class.

The profession of agent insurance promises unlimited income and insurance industry grows rapidly. One day maybe you will be interested with this job. Perhaps in the near future you want to purchase car insurance or home insurance, property insurance etc. It's OK. I think, you should know 10 [ten] issue about insurance, like bellow :

1.   What is a Risk?
Risk is a possibility of adverse results arising from any occurrence. Therefore Risk arises out of uncertainty. In Insurance the term risk is used to mean either a peril to be insured against (fire is a risk to which property is exposed) or a person or property protected by insurance, (miners are not considered as good risk for accident insurance).

2.   What is an Insurance?
insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss.

3.   What is a Policy of Insurance? 
Policy of Insurance is The formal contract issued by an insurance company [called "insurer"] that contains terms and conditions of the insurance cover and serves as its legal evidence.

4.   What is a peril?
A peril is the cause of loss in a situation i.e. fire, storm, flood or theft etc. By taking an insurance cover, one protects himself or his property against certain perils.

5.   What is a cover note?
It is not always possible on the part of the Insurance Company to issue an actual policy document immediately as soon as the proposal is signed and premium is paid. There may be a need for the insured to prove that the cover is in force,for instance in motor insurance, there is a legal requirement. In such cases as a temporary measure, a document which is known as 'cover note' is issued to the insured which briefly gives the details of the cover. Subsequently, cover note is replaced by the policy document.

6.   What is utmost Good Faith?
This is one of the basic principles of insurance. When a person comes to the Insurance Company for any Insurance, he knows everything about the property or the person to be insured whereas the insurance company knows nothing. Hence it is the duty of the insured to make a full disclosure to the insurance company without being asked of all material circumstances. This is expressed by saying it is a contract of the utmost good faith.

7.   What is insurable interest ?
The existence of insurable interest is an essential ingredient ofany insurance contract. In an insurance contract, it is not the house or machinery or the ship that is insured, but it is the pecuniary interest of the insured in that house, machinery or shop etc. which is insured. The insured must stand in a relationship with the subject matter of insurance whereby he benefits from its safety or well-being and would be prejudiced by its loss or damage. And this relationship must be recognized by law.

8.   What is indemnity ?
'Indemnity' for the purpose of insurance contracts, is a mechanism by which insurers provide financial compensation sufficient to place the insured in the same financial position after a loss as he enjoyed immediately before it occurred. In layman's language, if your old property is totally damaged or lost, insurance company will normally, reimburse the present market value of the old property and not the value of a brand new property of similar nature. But there are certain exceptions to this principle.

9.   What is reinstatement ?
As a method of providing indemnity, reinstatement refers to property insurance where an insurer undertakes to restore or rebuild a building or piece of machinery damaged by any specified perils or by breakdown under an engineering policy.Under a 'reinstatement value policy' if the SI is chosen for the new value of the property, in case ofa loss, the insured can be reimbursed the current replacement value of the property without any deduction for wear and tear or depreciation.

10.   What is Sum Insured ?
Sum Insured is the value for which a property or a person is insured. There is no system which makes you to determine the exact value of property to be insured. In fire insurance or engineering insurance,, insured has the option to select the new replacement cost of the Building / Property or machinery as the Sum Insured and in case of a loss, they may get reimbursed the said cost under the principle of "new for old".For covering a person, there is no set formula and the insurance companies (insurers) normally accept maximum 3 to 5 times of annual income of the person as the Sum Insured under accident policy.