Along with the increasing risk in everyday life, having insurance is an alternative that we can do as a protective measure for ourselves and our families. Insurance is also an investment product that is very familiar to people, especially in urban areas. For those of you who are laymen in this regard, the following is an explanation of the meaning of insurance premiums, which are an inseparable part of the insurance itself.
Definition of Insurance Premiums According to Experts and Accounting Sciences
The following is the understanding of premiums in insurance according to some experts.
- According to Juli Irmayanto et al: premium is something that is given as a gift or something that is paid extra as a driver or designer or an additional payment above normal payments.
- According to Subagyo et al: insurance premiums are money paid by the insured against an insurance company that can be determined in a certain way.
- The definition or definition of insurance premium according to the last experts was formulated by Soeisno Djojosoedarso: namely the payment from the insured to the insurer.
Thus, it can be concluded that insurance premiums refer to two things. First, the reward for the services provided by the insurer to the insured party to replace the risk of losses that may occur in the future (on loss insurance), 2. Rewards for protection services provided by the insurer to the insured by providing some money against the risk of old age and death (in life insurance).
In addition to the opinion of these experts, the meaning of insurance premiums in accounting is a term that describes a number of funds paid by the policy holder to the insurer or insurance company to obtain a protection value if the affected party is struck by an undesired event.
Still related to accounting, there are premiums which are referred to as gross premiums or premiums obtained from direct closure and indirect closure. This includes the premium earned from closing a joint policy. While for reinsurance premium is part of gross premium which is reinsurance right in accordance with reinsurance agreement.
Example of Insurance Premium Calculation
If you are interested in working with an insurance company, here is an example of a simple calculation of insurance premiums that you should know. Insurance companies have 2 references in calculating the amount of premium, namely the law of large numbers, and mortality and the amount of premium.
Example of Insurance Premium Calculation: According to the Law of Large Numbers
For the first calculation, the philosophy of large numbers is uncertainty and the risk will be smaller if the number of people who become customers of insurance companies increases. So the greater the number of people who join a life insurance program, the accuracy of the calculation of the possibility of insurance losses will be easier to do. Thus the company will be able to anticipate claims in the future more precisely.
For example, companies will face a large risk if they have to cover insurance coverage for one customer with a value of 100 million in 1 year. But when people who take part in an insurance program reach 500 people, uncertainty will be minimal even though the risk remains. This means that the number of deaths will decrease so that companies can anticipate claims more accurately.
Example of Insurance Premium Calculation: According to Mortality
Still related to the understanding of insurance premiums , companies will calculate premiums based on statistical results in the mortality rating table. This is related to age levels. From the data that has been previously observed, insurance companies then calculate the average as a benchmark for designing illustrations of possible life expectancy rates for each age group.
In addition, the calculation of premiums will also be linked to estimates of interest rates, distribution costs, and administrative costs. This is certainly in accordance with the policies of each insurance company. Well, hopefully the information above can add to your insight.
