Understanding Insurance Contract

13 April 2022

The term insurance is certainly very familiar in the community. However, the fame of the term insurance is not directly proportional to literacy or public understanding of what insurance is.   Without having a complete understanding, people can misunderstand insurance contracts and are easily affected by negative news related to insurance both in the mainstream media and social media.

This understanding if left unchecked will be counterproductive to the insurance industry as a whole because it can lead to people's interest   in buying insurance products.  The National Survey of Financial Literacy and Inclusion (SNLIK) conducted by the Financial Services Authority (OJK) in 2019 showed that insurance literacy was only 19.4 percent or lower compared to the banking literacy index which was at the level of 36.12 percent.

The low literacy of insurance is certainly a challenge with all stakeholders (stakeholders) of the country's insurance. The reason is, insurance is an important financial product for the community because it aims to provide protection for the risk of financial loss when the insured or insurance policyholder experiences certain conditions that are covered or covered by insurance. For example, insurance provides coverage for death, insurance covers health costs, or insurance provides compensation for damages or losses arising from a particular event.

So what exactly is insurance? Insurance is a financial product based on a written contract.  The contract in question is an agreement on the risk transfer between two parties, namely the insurance company as the insurer and the insured or commonly referred to as the policyholder.  What is the term policy and the difference with what premium?

The policy itself is a proof of a written agreement of insurance that contains all rights and obligations between the insurer and the insured. In essence, this policy becomes a reference for insurers and insured during the life of the insurance contract. The policy is also a reference if at any time there is a dispute between the insurer and the insured. For example, regarding whether a risk of damage is borne by the insurance company or not, the decision will refer to or based on the provisions contained in the policy. So the insurance company cannot refuse a claim if the clause in the policy mentions the claim submitted including the risks covered in the policy.

Thus, the insurance contract is actually very objective and transparent, especially there is an obligation for the prospective insured to read and understand all the terms and conditions contained in the policy first before signing it.

Meanwhile, what is meant by the term premium is money or fees that must be paid by policyholders to insurance companies periodically both monthly and annually. The value of the premium and the payment period have been agreed upon by the insurer and the insured and stated in the policy.

In general, the type of insurance is divided into two, namely life insurance and general insurance. As the name suggests, life insurance is an insurance product that bears the risk of death.  Death risk coverage in life insurance products is usually also combined with other benefits such as education and health.

Meanwhile, general insurance is an insurance product that bears the risk of loss on property/property/vehicles, financial interests (pecuniary), legal liability (liability), and personal insurance (accident insurance and health insurance).

Insurance Contract

Before an insurance contract occurs, we need to know how the process of insurance contracts and what documents are known in the insurance contract process. When referring to civil law, namely referring to the articles of Civil Codes: 1320, 255 and 257, there are three main things that need to be known.  First, the agreement/alliance/agreement is considered valid according to the law if it meets four conditions, namely agreeing to those who bind themselves, the ability to make an alliance, a certain thing, and a halal cause.

Second, an insurance or coverage agreement must be made in a deed called a policy. And third, the responsibility or rights and obligations of bali lead between insurers or insured starting from the date of the agreement, even though the policy has not been signed. 

However, when referring to the general practice of the insurance business, there are four stages in the process of the occurrence of insurance contracts, namely the existence of  offers, acceptance (approval of offers), considerations, and consensus (consensus ad idem) which means mutual agreement on the terms and procedures for implementing the agreement.

          One important thing that is often misunderstood by the public or the insured is that the offer brochure issued by the insurance company is not an offer document but only an advertising/promotional medium or notification about insurance products and guarantees. So this offer brochure cannot be a reference in the process of submitting a claim or when a dispute occurs. Therefore, the prospective insured is advised to be critical and determine whether the things listed in the offer brochure are also listed in the policy document.

          In insurance, the bidding process begins with the prospective insured who submits an application by filling out the Policy Closing Request Letter (SPPA) document provided by the insurance company. This SPPA document must be filled out directly by the prospective insured completely and correctly.  SPPA must be filled by the insured candidate and signed because it will be the basis for making an insurance policy, which will later become one of the proofs of the claim service process.  If the data filled in turns out to be incorrect, it can result in rejection of insurance claims in the future.  Well, the SPPA document that has been filled out by the prospective insured serves as a risk offer from the insured to the insurer.     

Insurers or insurance companies will analyze the data submitted by the prospective insured which will later be used as the basis for the creation of an insurance policy.  The insurer's approval of the SPPA submitted by the insured is the acceptance stage.

If the policy has been accepted, the prospective insured must carefully read the policy along with all existing attachments. If there is a clause that is deemed not in accordance with that submitted by the agent or offer brochure, the prospective insured is advised to immediately report for the change in accordance with the free look period or free period where in that period the policy can still be canceled or made changes.

The next process is the distribution of insurance premiums or consideration stages. If the policy has been received and premium payments have been made, then between the insurer and the insured effectively implement the agreement according to the terms of the policy or referred to as the consensus ad idem stage.

          Thus, the documents that must be in the insurance contract are first, the SPPA that has been filled out by the insured candidate. Second, the insurance policy is complete with special clauses or requirements attached to the policy. Third, insurance premium receipts as a means of collecting premium payments. 

            Fourth, claim form (blanko fill in about reports / notifications of claims and supporting documents that are required as other supporting evidence).  And fifth, cover notes as a substitute for premium tweets because some companies that have not issued policy documents if the premium has not been paid in full by prospective customers will issue a cover note.

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