Understanding Insurance: A Comprehensive Overview

What is Insurance?

In general, insurance is a contractual arrangement between an individual or entity (the insured) and an insurance company (the insurer), whereby the insured pays a premium in exchange for financial protection against specified risks.

Similarly, in Indonesia, Law Number 40 of 2014 concerning Insurance defines insurance as an agreement between an insurance company and a policyholder, on the basis of which the insurance company receives a premium in exchange for providing compensation for losses, damages, or legal liabilities that may be experienced by the insured or policyholder, or for providing payments for the death or life of the insured.

In addition, insurance companies can also provide benefit payments to the insured’s heirs if the insured dies, or to the insured upon reaching a certain age. Insurance essentially helps policyholders manage risks and uncertainties in the future, provides a financial safety net, and is an investment for peace of mind and certainty in the future.

Laws pertaining to Insurance in Indonesia

Law Number 40 of 2014 concerning Insurance (“Law 40/2014“)
Law Number 4 of 2023 concerning Development and Strengthening of the Financial Sector (UU P2SK)
Decision of the Constitutional Court Number 32/PUU-XVIII/2020 regarding the Review of Law Number 40 of 2014 concerning Insurance

Aside from the above, there are also regulations set out by the Financial Services Authority (Otoritas Jasa Keuangan) of Indonesia that govern insurance companies and practices.

Insurance types

Types of Insurance in Indonesia

In general, there are two main types of insurance under Law 40/2014:

General Insurance
General insurance is a risk underwriting service business that provides compensation to the insured or policyholder for losses, damages, costs incurred, loss of profits and legal liabilities to third parties. This includes protection against various uncertain events, such as accidents, loss of property, and financial losses.

Sharia Insurance
Sharia insurance is a series of agreements between an insurance company and a policyholder arranged based on the principles of Islamic Sharia and regulated through fatwas from authorized institutions. This business aims to provide compensation for losses and protect against uncertain events, in compliance with Islamic law overseen by authorized institutions.

By understanding the differences between general insurance and Sharia insurance, individuals can choose the protection that suits their needs and values.

What is Insurance Policy?

Previously, we have explored the essence of insurance as an agreement between an insurance company and a policyholder. So, what is insurance policy? An insurance policy is a contractual document that binds the policyholder to the insurance company. This policy clearly states the rights and obligations of each party regarding protection or risk management.

The policyholder is the party that binds himself to the insurance company to obtain protection or manage the risks faced or experienced by the insured or other participants named in the policy.

An insurance policy usually contains information about the type of protection provided, the premiums to be paid, the validity period of the policy, the limits of protection, and other relevant provisions. This document also serves as valid proof that the policyholder has agreed with the insurance company regarding the protection or risk management they have chosen.

An insurance policy is very important in providing clarity and legal certainty for both parties. Therefore, it is very important for the policyholder to understand the contents of the insurance policy carefully before signing it.

Insurance claim

Insurance Claim Settlement

When an event covered by an insurance policy occurs, the next important step is to file an insurance claim. An insurance claim is the process through which the policyholder requests the insurance company to provide payment or compensation for the loss or damage that has occurred.

According to Law 40/2014, insurance companies, both conventional and Sharia, together with reinsurance companies, must handle claims and complaints quickly, simply, and fairly. They are prohibited from taking actions that could delay the settlement of claims or payments, and they are not allowed to take actions that harm policyholders or participants, so that the claim settlement process runs smoothly and fairly for all parties involved.

The insurance claim process usually involves collecting the necessary documents, such as incident reports, proof of loss, and other related documents. Once all documents are complete, the insurance company then reviews the claim and determine whether or not the claim is eligible for payment or compensation.

As a policyholder, it is important to thoroughly understand the insurance claim process, including the insured’s rights and the insurance company’s obligations in order to handle claims quickly and fairly.

From insurance, we know that financial protection is key in facing unexpected risks. If you want to get more information or consult about insurance, do not hesitate to contact us at ADCO Law.

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About ADCO Law:

ADCO Law is a firm that offers clients a wide range of integrated legal services, including in commercial transactions and corporate disputes in a variety of industry sectors. Over the course of more than a decade, we have grown to understand our client’s industry and business as well as the regulatory aspect. In dealing with business dynamics, we provide comprehensive solid legal advice and solutions to minimize legal and business risks.

ADCO Law is a Proud Member of the Alliott Global Alliance (AGA) in Indonesia. Founded in 1979, AGA is one of the largest and fastest-growing global multidisciplinary alliances, with 215 member firms in 95 countries.

As a law firm, we also believe in regeneration. To stay abreast of business changes and stay relevant, our formation of lawyers is comprised of the top graduates from Indonesian and international law schools.

Should you have more queries regarding this matter, please do not hesitate to contact us

ADCO Law

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Jl. H.R. Rasuna Said Kav. 62, Setiabudi Karet

Jakarta Selatan, 12920, Indonesia.

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Disclaimer: This article has been prepared for scientific reading and marketing purposes only from ADCO Law. Accordingly, all the writings contained herein do not constitute the formal legal opinion of ADCO Law. Therefore, ADCO Law should be held harmless of and/or cannot be held responsible for anything performed by entities who use this writing outside the purposes of ADCO Law.