Economy Under Pressure: Three Insurance Types That Can Be Your Saviour

As the rupiah exchange rate comes under pressure and interest rates rise, public financial risks will inevitably increase, making risk mitigation through insurance critically important rather than something to be neglected.

Bank Indonesia’s benchmark interest rate rising to 5.50% amid economic pressures further burdens the public’s cost of living. Added to this, the depreciation of the rupiah, which has breached Rp18,000 per US dollar, increasing loan costs, more expensive imported goods, and slowing purchasing power are all becoming new challenges for Indonesian society.

In conditions like these, many families begin to economise. Unfortunately, one expense item that often enters the reduction list is insurance premiums. In fact, precisely when economic conditions are difficult, financial protection becomes ever more important.

Many people consider insurance a cost. Yet, its primary function is to protect assets and income when unexpected risks occur. When the economy is growing strongly, a loss of income or facing sudden medical costs might still be supported by savings, investments, or additional income. However, when the economy slows, a family’s financial leeway becomes much narrower. This means a single unexpected event can directly shake a household’s financial condition.

There are three unforeseen events that often arrive regardless of whether the economy is doing well or not. First: illness. Healthcare costs have a continuous upward trend each year in line with rising medical inflation. When income stagnates while treatment costs rise, the risk of large expenditures due to illness becomes increasingly heavy. Without health insurance, a family could be forced to use savings, sell assets, or even take on debt to pay hospital bills. In this situation, health insurance can be a saviour for your wallet.

Second: job loss. Interest rate hikes are usually followed by a slowdown in economic activity. The business world faces more expensive borrowing costs, so expansion decelerates. In such a situation, the risk of income reduction, bonus cuts, and even layoffs tends to increase. Some insurance products have cash value or investment features that, in difficult situations, can become an emergency fund. Specifically for a family’s main breadwinner, life insurance functions as an ‘income replacement’ if a risk of death or permanent disability occurs, causing a loss of earning capacity.

Third: accidents or misfortune. For mortgage, vehicle loan, or business loan holders, rising interest rates potentially increase installment burdens. This condition certainly makes financial capability more limited. If a health risk or other calamity occurs simultaneously, the financial pressure will be compounded. Insurance can serve as a layer of protection so that one risk does not escalate into a family financial crisis.

When income is pressured, many people choose to stop their insurance policies to save on monthly expenses. This decision often appears reasonable in the short term but can prove costly in the long term. Some consequences to consider include losing protection when risks are actually increasing, difficulty buying a new policy due to increased age, potentially more expensive new premiums, and health conditions that emerge after a policy lapses potentially becoming exclusions when purchasing a new policy. In other words, halting insurance can create financial risks far greater than the premium savings obtained.

Interest rate hikes, a weakening rupiah, and economic slowdown indeed force the public to be more selective in managing expenses. However, insurance should be viewed as a protective necessity, not just a consumption item easily trimmed.

As for the three insurance products you must own from an early stage to fend off unexpected risks amid economic turmoil: First, Health Insurance. Amid economic pressure, a single hospitalisation can deplete savings collected over many years. Medical inflation in Indonesia has historically grown faster than general inflation. Rising drug prices, medical devices largely still dependent on imports, and hospital service costs make health risks an increasingly large financial threat. In a weakening rupiah environment, healthcare cost pressures can even rise higher because many pharmaceutical raw materials and medical devices still originate from abroad. Without health insurance, families risk facing two pressures at once: income eroded by economic conditions and large, sudden medical expenses.

Second, Life Insurance. In every household, there are one or several family members who act as the main breadwinner. If the breadwinner dies or suffers a permanent disability preventing them from working, the impact can be far greater than damage to physical assets. The life insurance benefit provides replacement funds that enable the family to maintain their quality of life and continue financial plans already developed. Particularly in uncertain economic times, protection of the family’s source of income becomes increasingly crucial.