Understanding Sharia Insurance and the Difference with Conventional Insurance

Currently, there are many types and benefits offered by insurance, where every insurance company has a variety of features and advantages in each product they spend. But as a prospective user, it is reasonable if we understand and know well insurance that we will choose and use. This will help us to get maximum benefit and benefit from the usage.

Over the last few years, Takaful insurance became one of the insurance products that many talked about in the community. This insurance is present to meet the interests and desires of many people who expect a kosher insurance products and in accordance with the provisions of sharia.

According to the National Sharia Council, Takaful is an effort to protect each other and help one another among others, where this is done through an asset investment (tabarru) that provides a pattern of return to face certain risks through appropriate contracts with sharia. In Takaful Insurance, a system applies, in which the participants will grant a part or all of the contributions that will be used to pay the claim if there are participants who experienced the disaster. In other words, it can be said that, in Takaful insurance, the role of the insurance company is limited to the operational and investment management of a number of funds received only. In Indonesia, sharia insurance is widely available in various life insurance products and health insurance that can be obtained easily through private insurance companies.

Differences between Sharia and Conventional Insurance

In its development, Takaful insurance has many advantages and advantages when compared with conventional insurance. This, of course, makes a fundamental difference between the two types of insurance. For example, if you want to apply for a sharia health insurance from Prudential, Allianz, Sinarmas or AIA, there are of course some advantages compared to ordinary health insurance. Here are the differences between Takaful and conventional insurance in general:

• Risk Management

Basically, in Takaful Insurance a group of people will help each other and help each other, mutual guarantee and work together by collecting grant funds (tabarru'). That way it can be said that risk management is done in the Takaful is using the principle of sharing of risk, where the risk is charged/divided to the company and the participant of the insurance itself.

While in conventional insurance apply the system of transfer of risk, in which the risk transferred/charged by the insured (the insurer) to the insurance company that acts as the insurer in the insurance agreement.

• Fund Management

The management of funds made in the Takaful insurance is transparent and is used as much as possible to bring benefits to the policyholders themselves.

In the conventional insurance, the insurance company will determine the number of premiums and various other costs aimed at generating revenue and profits as much as possible for the company itself.

• System of Agreement

Within Takaful insurance, only a grant contract (tabarru) is based on the sharia system and it is halal. While in conventional insurance akad done tend to be same with a sale and purchase agreement.

• Ownership of Funds

In accordance with the contract that is used, then in the Takaful insurance fund is a joint property (all participants of insurance), where the insurance company only acts as a fund manager only. This does not apply to conventional insurance, as the premium paid to the insurer belongs to the insurer, in which case the insurance company will have full authority over the management and allocation of insurance funds.

• Distribution of Profits

Within Takaful, all profits earned by the company in relation to the insurance fund will be distributed to all participants. But it will be different from conventional insurance companies, where all the profits earned will be the property of the insurance company.

• Obligation of Zakat

Islamic insurance companies require participants to pay zakat whose amount will be adjusted to a number of profits earned by the company. This is not true in conventional insurance.

• Claims and Services

Within Takaful Insurance, participants can take advantage of the protection of hospitalization costs for all family members. Here the system applies the use of the card (cashless) and pays all bills arising.

One insurance policy is used for all family members, so the premiums imposed by Takaful insurance will also be lighter. This is not the case in conventional insurance, where everyone will have their own policies and the premiums charged will certainly be higher.

Sharia insurance also allows us to double claim, so we will still get the claim that we submitted even though we have got it through our other insurance.

• Supervision

Within Takaful, supervision is conducted strictly and implemented by the National Sharia Council (DSN) established directly by the Indonesian Ulema Council (MUI) and is tasked with overseeing all forms of implementation of sharia economic principles in Indonesia, including issuing fatwas or laws governing them. In every syariah financial institution, there should be a Sharia Supervisory Board (DPS) that serves as supervisor. This DPS is representative of the DSN in charge of ensuring that the institution has implemented Sharia principles correctly.

DSN is then tasked to conduct supervision of all forms of operations carried out in the Takaful, including considering all forms of the property insured by insurance participants, where it should be halal and free from haram. This will be seen from the origin and source of the property and the benefits it generates.

Unlike conventional insurance, where the origin of the insured object is not a problem because what the company sees is the value and premium that will be stipulated in the insurance agreement.

• Investment Instruments

It also becomes a big difference in sharia and conventional insurance. Within Takaful Insurance, investments can not be made in various business activities that are contrary to sharia principles and contain haram elements in their activities. Included in this activity are:

1. Gambling and games belonging to gambling. Trade prohibited by sharia, among others: trades that are not accompanied by the delivery of goods/services, and trade with bogus supply/demand. Ribawi financial services, among others: interest-based banks, and interest-based financing companies. Buy and sell risks that contain elements of uncertainty (gharar) and/or gambling (maisir). 
2. Producing, distributing, trading and/or providing various goods, such as haram li-dzatihi goods, or goods or services forbidden by the substance (haram li-ghairihi) stipulated by DSN-MUI. Conducting transactions that contain elements of bribe (risywah).

Such provisions, of course, do not apply to conventional insurance, because basically in conventional insurance companies will conduct various investments in various instruments aimed at bringing the maximum profits for the company. This can be done without using/considering the haram or not the selected investment instrument, because basically in the conventional insurance fund that is actually funds owned by the company and not the owner of the insurance policy, so the company has full authority in the use of funds, including in choosing the type of investment to be used.

• Hanged funds

In some types of insurance issued by conventional insurance companies, we recognize the term "charred funds" which is the case with unclaimed insurance (eg life insurance that the policyholder does not die until the coverage period ends). But such a thing does not apply to Takaful insurance because the funds can still be taken even though there is a small portion of which is tabled as tabarru funds.Confused looking for the best and cheapest health insurance? Check out the solution!

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