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Insurance is a term used to refer to an action, system, or business where financial protection (or financial compensation) for the soul, property, health and so forth get a replacement from unpredictable events that can occur such as death, loss , damage or illness, which involves paying premiums regularly within a certain period of time instead of a policy that guarantees such protection.




The term “insured” usually refers to everything that gets protection.

Basic Insurance Principles

In the insurance world there are 6 basic principles that must be met, namely:

• Insurable interest, namely the right to insure, arising from a financial relationship, between the insured and the insured and legally recognized.

• Utmost good faith, which is an action to disclose accurately and completely, all material (material fact) facts about something that will be insured whether requested or not. The meaning is: the insurer must honestly explain clearly everything about the extent of the terms / conditions of insurance and the insured must also provide clear and correct information on the object or interest insured.

• Proximate cause, which is an active, efficient cause that causes a chain of events that results in an effect without the intervention of one who starts and actively from new and independent sources.

• Indemnity, which is a mechanism by which the insurer provides financial compensation in an effort to place the insured in the financial position he had just before the loss occurred (KUHD article 252, 253 and affirmed in article 278).

• Subrogation, namely the transfer of claim rights from the insured to the insurer after the claim is paid.

• Contribution, which is the right of the guarantor to invite other guarantor who both bear, but do not have the same obligation to the insured to participate in providing indemnity.

Type of Insurance

1. Life Insurance

This type of insurance is known to provide financial benefits to the insured for his death. The payment system for this type of life insurance varies. There are insurance companies that provide payment after death and others can allow the insured to claim funds before his death.

Life insurance can be purchased for self-interest and on behalf of the insured alone or purchased for the benefit of a third person. Even life insurance is also known to be bought in other people’s lives. As an illustration, suppose a husband can buy life insurance that will provide benefits to him after the wife’s death. Parents can also insure themselves against the child’s death.

2. Health Insurance

This type of insurance is also quite well known by the people of Indonesia. Health insurance is an insurance product that handles the health problems of the insured because of an illness and covers the cost of the treatment process. Generally, the cause of the insured’s illness which can be borne by the insurance company is injury, disability, illness, until death due to accident.

Health insurance is also known to be bought for the benefit of the insured or the interests of a third person. Private health insurance companies such as Prudential, Allianz, AIA, Cigna, and Manulife are among the big names that provide a variety of insurance products to suit the needs of the Indonesian people and are widespread throughout the world.

3. Vehicle Insurance

The most popular vehicle insurance in Indonesia is a type of car insurance that focuses on injury coverage to other people or against damage to other people’s vehicles caused by the insured. This insurance can also pay for the loss or damage to the insured motor vehicle.

Vehicle insurance is one of the general insurance products. This type of insurance had become a boom when the riots broke out in May 1998 because the incident made people’s interest in protection ownership for private vehicles increase dramatically.

The financial site Cermati.com has partnered with well-known insurance companies in Indonesia so you as a customer can compare the best car insurance products with low rates.



4. Education insurance

Dizziness with children’s education costs? This type of insurance will help you overcome. Education insurance is the best alternative and a solution to ensure a better life, especially in children’s education assets. The cost of the premium that must be paid by the insured to the insurance company varies according to the level of education to be obtained later. Understanding the importance of using education insurance for children is now a matter of concern for parents. The high cost of education and other conditions that exacerbate the economy such as the weakening of our currency against the US dollar affect the cost of education for children later. Realizing that this clearly will burden parents, it is not uncommon for parents now to choose to have education insurance. So, education insurance can be classified as the types of priority insurance too, right? You will certainly be helped in taking care of the child’s future.

5. Travel insurance

Maybe for those of you who often travel or travel are familiar with this type of insurance. The various types of insurance also create a variety of protection for travelers. Overall, the function of travel insurance is not much different from the ordinary insurance function as a form of protection for customers with a short period of time that is for the premium buyer to travel until returning home. Benefits and protection that will be gained from having travel insurance include obtaining protection and coverage for accidents that affect premium buyers, personal accident benefits, dependents for emergency medical expenses, repatriation of bodies, medical evacuation, to protection of luggage that has a risk of being lost. or damaged.

6. Business insurance

For those of you who have a business field, this type of insurance is important to consider. In addition to the types of insurance that involve individual protection, insurance that protects businesses is also needed. Business insurance is a protection service against damage, loss and loss in a large amount that may occur in one’s business. This insurance provides compensation for damage caused by fire, explosion, earthquake, lightning, flood, hurricane, rain, collision, until riots. Insurance companies usually offer a variety of benefits from business insurance such as protection of employees as business assets, investment and business protection, comprehensive life insurance for all employees, to health insurance protection packages for employees.

Advantages of Insurance Companies

Insurance companies also benefit from investment. This is obtained from the investment premium received until they have to pay the claim. This money is called “float”
Insurers can get profit or loss from float price changes and also interest rates or dividends in float. In the United States, property losses and deaths recorded by insurance companies were US $ 142.3 billion in the five years ended 2003. But total profits in the same period were US $ 68.4 billion, as a result of the float.

Insurance Refusal

Some people consider insurance to be a form of betting that applies during the policy period. The insurance company bet that the buyer’s property will not be lost when the buyer pays the money. The difference in fees paid to insurance companies against the amount they can receive if an accident occurs is almost the same as if someone bet on horse racing (for example, 10 to 1). For this reason, some religious groups including the Amish avoid insurance and depend on the support received by their community when disaster occurs. In communities where close and supportive relationships where people can help each other to rebuild lost property, this plan can work. Most people cannot effectively support the system as above and this system will not work for big risks.






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38 Replies to “Insurance Explained – How Do Insurance Companies Make Money and How Do They Work | My Insurances Info”

  1. Risk pooling is a good concept, so 1 incident doesn't ruin a family. Most people don't like insurance companies cuz they think there is no value in it. e.g., people think it is outrageous they pay few thousand $ for some kind of injection while they are already paying insurance, but they have no idea that shot cost like $20K charged to the insurance company. Guess why CVS is buying up insurance companies, not the other way around, it's cuz big money is not with insurance, they don't make a lot of money from people, not as much as the drug manufacturers or other healthcare service provider.

  2. Modern day insurance have practically nothing in common with what`s mentioned in this video, this video is a fairy tale childrens idea of how the insurance companies actually works. Real insurance is just about frauding and scamming people and putting money into offshore bank accounts.

  3. In the UK car insurance companies work and make money by making the government legally force you to get it before you can drive with the police enforcing such laws with young drivers paying extortionate prices to drive.

  4. People complaining about insurance divide in mainly 2 categories: people that took a policy under false pretense, and people that went for the cheapest absolute policy without reading their contract to see the gazillion things they are not covered for. And when shit hits the fan, they will not pay cause they said they won't from the start, or that during claim they found out that you lied on submission about your circumstances (I don't smoke, was never suicidal, etc)

  5. I dont think that anyone wonders how they make money, they overcharge you for something that you are legally required to have, and then punish you for using it by making you pay more

  6. Isn't it just a pyramid scheme that wont ever end. It might one day and those last claims won't get paidout unless they have a lot of cash stashed but I am sure them ceos will have it in their banks by then.

  7. If insurance is not a scam, than why do people pay one company for 20 years and then get dropped after their first accident?
    How can someone move from the coast of Southern California to a rural area in Oklahoma and have their insurance rates go from $120/month to $300/month on a car that was 12 years old at the time (2001 Chevy Aveo in 2013)?
    If the average driver only has 3 to 4 minor car accidents in an entire lifetime, why are we paying such high prices per month?
    I drive a '97 GMC Sonoma with a clean driving record, no accidents, yet I still pay $130/month. After 1 year of insurance payments, I've paid more than the cost of the car itself. AND THAT'S JUST LIABILITY! How is this NOT a scam?
    On top of all that, the state government forces you to buy insurance from private companies by making insurance a MUST HAVE to drive, but not offering any kind of affordable public insurance.

  8. This is a very confusing way of explaining this. How do insurance companies make money? Well in UK the car insurance industry has an annual income of more than 13 billion pounds in cash. To put that in perspective, its around double the cost of building and maintaining every road in UK. That is the cost of car insurance alone. All insurance companies offer house, life, bussiness, investment…etc insurance as well. Which means the annual turn over for the industry is likely several times more than that estimate. Since insurance companies often own a lot of shares, properties and investments in other industries, their borrowing capacity in the banks is five times their total balance income. The insurance industry is worth several trillions in profit basically. All that income for an industry whose only expenditure is in call centre staff which is far lower since its mostely donw online.

    Its no wonder that the CEO of the medium sized insurance company like the NFU makes double the salary of the highest paid foodball player like Messi and Ronaldo.

    How do insurance companies make money? The short answer is by doing feckall…

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