A risk transfer from one party to another is another definition of insurance. The delegation is governed by the law and the application of commonly embraced values and teachings by the first party and other parties. When viewed from an economic angle, insurance refers to a pool of money that may be utilized to pay out or compensate those who have suffered losses.
Insurance can lessen the impact of losses caused by unforeseen events, whether they are little or significant in scope. Insurance cannot eliminate the risk of unforeseen events. For some people, long-term financial planning now includes insurance.
Insurance has several purposes that can be divided into three categories: primary function, secondary function, and extra function. It also serves as a method of risk mitigation (financially). Insurance’s primary purposes are to transfer risk, collect money, and balance premium payments. Insurance’s secondary purposes include promoting economic expansion, loss control, social welfare, and savings. Insurance also serves as an investment vehicle and a source of hidden income.
Insurance that we must have:
· Health coverage or health insurance, In the case of an accident or illness, health insurance protects the insured by covering medical and treatment costs. The company or organization where an individual works frequently offers this kind of insurance.
· Term life insurance, by offering the insured financial rewards in the event of his death, life insurance protects against a person’s demise. The policyholder will receive the amount insured from the life insurance when the insured passes away.
· Education protection or education insurance, savings for the future that will guarantee the children of the policyholder’s education are what education insurance is all about (the insured). It is becoming typical for parents to acquire education insurance as a result of the rising cost of higher education year after year.
· Insurance in general. Protection from the danger of loss and actual loss to the insured is provided by general insurance. Motor Vehicle Insurance is a well-known type of general insurance. This kind of insurance guarantee often has a brief duration.
· Loss insurance is insurance that bears the risk of loss, loss of benefits, and legal liability to third parties, arising from uncertain events. Examples of loss insurance products are fire insurance, marine transportation insurance, motor vehicle insurance, marine insurance, and property insurance.
What is the function of insurance?
· Primary Function
The mechanism for transferring risk serves as the principal or primary function. By paying a premium, this function serves as a way or mechanism for the insured to shift risk the potential for loss or damage from the insured to the insurer. The amount of the insurance premium that the insured pays must be reasonable and in line with the level of risk that the insurer is willing to take (equitable premium). As a result, the insurance provider has enough money to fulfill its responsibilities to clients who suffer losses.
· Secondary Function
Insurance’s secondary purposes include promoting economic and corporate development, mitigating risk, preventing and controlling loss, providing social benefits, and serving as a savings or investment vehicle. That’s why invest in income protection insurance policy Malaysia are useful.