Life is full of unexpected risks or unexpected, that’s why we need to understand about insurance. Some natural events that occurred in recent years and took many lives, both human casualties and property, such as reminding us of the need for insurance. For every member of society including the business world, the risk for experiencing disadvantage (misfortune) are always there (Kamaluddin: 2003). In order to overcome the losses resulting from, humans developed a mechanism which we now know as insurance.

The primary function of insurance is a mechanism to transfer risk (risk transfer mechanism), which shifted risk from one party (the insured) to another party (insurer). The transfer of this risk does not eliminate the possibility of misfortune, but the insurer to provide financial security (financial security) and tranquility (peace of mind) to the insured. In return, the insured pays a premium in a very small number when compared with the potential losses that may be suffered (Morton: 1999).

Basically, the insurance policy is a contract that is a legal agreement between the insurer (in this case the insurance companies) with insured, where the insurer was willing to bear some losses that may arise will be the future in exchange for payment (premium), some of the insured.

According to Law No. 2 of 1992, which referred to the insurance or coverage is an agreement between two or more parties, with which the parties committed themselves to the person insured, by accepting the insurance premiums to provide reimbursement to the insured for loss, damage or loss of expected benefits, or legal responsibility to a third party that may be suffered by the insured, arising out of an uncertain event, or to provide a payment based on a person dies or lives insured.

In order for a loss of potential (which may occur) may be covered by insurance (insurable) it must have the characteristics: 1) the occurrence of loss contains uncertainty, 2) the loss should be limited, 3) the loss must be significant, 4) the ratio of losses can be predicted and 5) loss is not katastropis (disaster) for the insurer.

The question arises; death is certain, why be insured? Although it is something that contains a certainty, but the exact time when a person’s death is beyond the control of the tsb. So when the occurrence of death that really contain uncertainty is what causes it insurable.

There are two forms of agreement in determining the payment amount at maturity of insurance, namely: the contract value (valued contract) and indemnitas contract (contract of indemnity).The contract value is an agreement where the payment amount has been determined in advance. For example, the value of Sum Insured (UP) in life insurance. Indemnitas contract is an agreement based on the number of santunannya amount of actual financial loss. For example, the cost of hospital care.

In the case of insurance companies trying to suppress the possibility of a fatal loss / large, it can transfer the risk to other insurance companies. This is called reinsurance; reinsurance companies that receive reasuradur called.

In addition to the five characteristics above, before it can be insured, the insurance company should consider the insurable interest and anti-selection. Insurable interest related to the relationship between the insured and the recipient of compensation / benefits – in terms of potential losses. For example, insurance companies will not sell fire insurance policy to the party other than the owner of the insured building. Insurable interest is an example dlm ownership insured eye out something. Similarly, family relationships, financial linkages are reasonable, also a form of insurable interest. The definition of anti-selection (counter selection) refers to a greater tendency to take out because it has a risk level above average. For example, people who have poor health record or the risk of dangerous jobs tend to want to buy insurance.To reduce anti-selection effect, insurance companies must be able to identify and classify potential risks or losses. The process of identification and classification of the level of risk is called underwriting or risk selection. But that does not mean anti-selection led to filing of insurance was rejected because of the risk of loss insured by above average premium may be subject to sub-standard (special premiums) because the risk is sub-standard (special risks) unless the possibility of much higher losses, insurance application may be rejected.