Policy: Definition, Function, and Types in Insurance

This article explains what a policy is, including its definition, functions, and types in the insurance world. If you invest in insurance, understanding this topic is essential.

Insurance can be quite complex; it requires thoughtful consideration and a deep understanding before use. Even though insurance is commonly heard of, many people still don’t fully understand how it works.

This lack of understanding often leads to low interest in using insurance. In Indonesia, however, the insurance industry is developing well.

This is reflected in the growing number of insurance companies in the country and the increasing number of users each year. The need for protection over life and assets motivates people to seek out insurance services.

The variety of insurance types also allows individuals to choose what best suits their needs.

Definition of a Policy

A policy is a written agreement between the insurance user (policyholder) and the insurance company. It outlines the rights and responsibilities of both parties.

This written contract serves as valid and binding proof of agreement. With a policy in place, both parties are bound by the obligations agreed upon. An insurance policy is crucial as it protects both the policyholder’s and the insurer’s rights and responsibilities.

Examples and Types of Insurance Policies

1. Warehouse Policy (Polis Veem)

This policy is an agreement for the insurer to cover or pay compensation for any damages to goods stored in a specific location.

2. Unvalued Policy (Polis Tidak Ditaksir)

This type allows the coverage value stated in the policy to act only as a maximum limit. A separate method is used to determine the actual claim amount.

3. Motor Vehicle Policy

This policy covers registered motor vehicles (cars or motorcycles), providing compensation for potential future damages.

4. Life Insurance Policy

This policy ensures the insurer pays a lump sum to the policyholder or their beneficiary upon the insured’s death. Types include term life, whole life, endowment, and unit-linked policies.

Examples of Life Insurance Policies

• Retirement Insurance
• Whole Life
• Term Life
• Child Life Insurance
• Unit Link

1. Travel Insurance Policy

This policy covers losses during a trip, valid from departure until the return. For example, journalists traveling to conflict zones can be covered under this policy.

2. Valued Policy (Polis Ditaksir)

This policy ensures compensation based on a predetermined amount stated in the agreement.

3. Home Insurance Policy (Property Insurance)

This policy compensates for losses due to home damages from fire, floods, natural disasters, or other events stated in the agreement.

4. War Risk Policy

Provides life insurance coverage for individuals in war zones.

5. Health Insurance Policy

This is one of the most commonly used types. It covers medical expenses for accidents or serious illness, often for inpatient or outpatient care.

Examples of Health Insurance Policy

• Personal Health
• Family Health
• Critical Illness (e.g., Super Strong)
• Senior Citizen Plans (60+)
• Corporate Health
• Maternity Insurance
• Personal Accident (e.g., Super Safe)

1. Microinsurance Policy

A small-scale policy with shorter coverage durations (days, months, or a year). Its benefits can rival those of larger life insurance plans. Some are tailored to specific illnesses or sports.

2. Floating Policy

Used for insuring goods stored in multiple locations. Since storage locations vary, the premium amount may fluctuate over time.

Functions of a Policy for the Policyholder

1. Serves as proof of premium payments made to the insurer.
2. Acts as a written guarantee of risk coverage and compensation.
3. Provides legal grounds to demand compensation if the insurer fails to meet obligations.

Functions of a Policy for the Insurance Company

1. Acts as legal proof to deny claims that don’t meet policy requirements.
2. Serves as proof of receipt of insurance premiums from the policyholder.
3. Provides a written guarantee of coverage offered to the customer.

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