financialtreat – will you explain about What is Insurance Risk? Let’s Read the Explanation! which you will get in the following article. let’s look at this article carefully!
What is insurance risk? Risk and insurance are like two sides of a coin that cannot be separated because they are interrelated. Risks can haunt anyone from office workers to even employers. Because risk always has the potential to happen, it takes action to manage risk called risk management.
To some extent, it is true that insurance is part of risk management because insurance is one way to minimize or overcome risk. Then, how do the risks and protection products that you have relate to in more detail? Come on, read the summary of insurance risks that we have prepared below!
Recognizing the Risks in Life Insurance! Let’s Read the Explanation!
What Is Risk and Insurance?
In general, insurance risk is an uncertain situation when something undesirable happens and can cause a loss. Meanwhile, risk management is a risk management process which includes identification, evaluation, and control of the risk itself.
Meanwhile, insurance is a system or protection action related to finances for the occurrence of unexpected things such as damage, loss, and death. Protection in the form of compensation, of course, with the approval of companies that provide insurance products and consumers who buy insurance products.
Insurance companies get sufficient costs in covering all customer losses through payment of insurance premiums made by consumers with a certain period of time. Besides being able to be used on personal behalf, insurance can also be used by companies to minimize risks related to the business being run.
Understanding Risk and Its Relation in the World of Insurance
Due to its erratic nature, insurance views risk as uncertainty. Insurance risks can be caused by individual activities (personal activities) or business activities (business activities).
Examples of personal insurance risks are accidents, illnesses, and financial risks caused by the death of a person. Meanwhile, the risk of business insurance is loss or damage caused by various things such as fires, natural disasters, bankruptcies, and so on.
Risk is an object of sale for insurance companies. By knowing the various types of risks that can be accounted for, you can select what kind of risks can be insured. This will certainly be the basis for choosing the insurance product you buy.
Risk Classification in Insurance
After knowing that insurance risk is a loss in the future that cannot be predicted when it occurs, you must also know the classification of insurance risk. Here’s the risk classification that you should know:
1. Pure Risk
Pure insurance risk is a risk that if it occurs, it will definitely cause losses and if it does not occur, it will not cause losses or will not cause profits. In the sense of pure risk, losses must occur such as fires, accidents, bankruptcy and so on.
2. Speculative risk
Speculative risk is a risk that has two possibilities when the event that is considered risk actually occurs, inversely proportional to pure risk. For example, when investing in stocks on the stock exchange, the investment process will pose speculative risks, namely there is the possibility of financial profit and on the other hand there is a risk of loss.
3. Particular risk
Furthermore, there are specific risks whose impact and causes only affect the local (personal) environment both in quality and quantity. For example, unemployed or a thief. When a person steals, the risks posed only affect that individual.
4. Fundamental risk
In contrast to the previous risk, fundamental risks can have a very far-reaching impact. There are certain factors or parties that cause this risk such as government policies, natural disasters, and so on.
5. Individual risk
Individual risks are various possibilities that occur in everyday life and can affect a person’s financial capacity, wealth and the risk of responsibility. Moreover Individual risk is divided into several groups such as personal risk, property risk and liability risk.
Personal risk is often associated with the influence of something or possibilities that can directly affect a person’s financial situation. Examples of personal insurance risks are job loss, physical disability, death, and so on.
6. Property risk
The risk of property is related to the ownership of an object due to theft, loss, or damage. Property risk has two types, namely direct losses and consequential losses.
7. Liability risk
Finally, there is the risk of responsibility that you have to give to the other party. Simply put, this risk makes you bear the loss of others due to your actions or things you do. For example, in an accident event, when you hit someone else, this is what is called liability risk.
Insurance Products That Cover Various Types of Risks
In fact, the losses caused by the above risks can be minimized by the products offered by insurance companies. You can observe various examples of insurance risks below:
1. Health insurance
Health insurance covers the object of risk in the form of health costs. Therefore, health insurance becomes a solution to pure risks, special risks, and individual risks. Therefore, this insurance will provide reimbursement for the cost of medical care at the hospital if you fall ill.
2. Life insurance
Another insurance that is no less important, is life insurance that covers the economic value of a person’s life. For example, a person who earns IDR 10 million will make his family lose the benefits of that income if he dies. The form of compensation from life insurance is in the form of cash compensation to replace the person’s income so that his family can continue living decently.
3. Car insurance
Not only humans, vehicles also have insurance to cover minor losses such as abrasions, berets, to total damage such as theft and mired. Due to the high crime rate in the capital, vehicle insurance such as car insurance deserves to be considered for you to have.
4. Maternity insurance
Birth insurance is part of health insurance. Various types of risks covered include the cost of childbirth, miscarriage, pre- and postpartum care, until the death of the mother and / or fetus. Birth insurance is a solution to pure risks and special risks that may occur in the future.
5. Education insurance
Education insurance is part of life insurance. Simply put, if there is a risk of permanent total disability or death to the participant, education insurance will provide compensation in the form of coverage for the school fees of the child left behind.
Like life insurance, education insurance can be a solution to deal with special types of risks and individual risks. Moreover, if the insurance is associate with investment or unit link so that it can overcome speculative risks for education costs in the future.
6. Property insurance
Property insurance provides coverage in the event of a loss to the policyholder’s property. For example, the cost of compensation for residential houses that are floode, burne, and so on.
Even some companies also provide property insurance benefits such as temporary residential accommodation costs. Therefore, property insurance is very important to have in order to overcome individual risks, property risks, pure risks, special risks, risks to the risk of liability.
7. Project insurance
The risk of liability is very likely to occur when working on a project. For this reason, project insurance is useful to minimize the impact of the risk of liability during the work period of a construction or project. These risk benefits also include legal liability to third parties, heavy equipment damage, work accidents and the like.
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Risk Criteria for Getting Protection from Insurance Companies
Here are some of the risk criteria that are include in the insurance product, namely:
- The risk must occur due to accident and unpredictable
- The risks that can be borne must be general and homogeneous
- The impact of that risk can be assesse financially or with money
- There must be an insure or insure object such as illness, loss, property, and so on
- The insure object does not conflict with the public interest and applicable rules. For example, drugs cannot be use as an object of insurance
- The premium charge to the policyholder must correspond to the level of risk insure. Although the coverage can exceed the actual price or interest, of course only within a certain limit (double insurance).
That’s a brief explanation of the risks of insurance and what is include in the greeting is life insurance. Not many people know this, but the explanation above hopefully can help understand. Having life insurance is one of the right steps for the future. Don’t make a misstep!