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Differences between Sharia and Conventional Insurance

Recognize and understand the difference between Sharia and conventional insurance

Speaking of risks, everyone definitely has a life risk. For what? Because there is always uncertainty about the future.

So are we ready to face the risks that arise in life, especially those related to health and finances? In fact, many said they were not ready. Even if we often hear the wise saying, prepare an umbrella before it rains, which means more or less before the risk arises, you have to be prepared, especially in financial matters.

You have certainly been offered various insurance products such as health insurance or life insurance. But have you already discovered more information about Sharia insurance? Did you know that Shariah insurance not only helps prepare you to face risks, but can also help others? Let's get to know Sharia protection more deeply!

What is Sharia insurance?

Based on fatwa DSN MUI 21/DSN-MUI/X/2001 regarding general guidelines for Shariah insurance.

Definition of Shariah Insurance

Sharia insurance is an attempt at self-help and sharing among a number of people or parties through investments in the form of assets or tabarru that provide a model of return to meet certain risks using a Sharia-compliant contract.

The Sharia Insurance Company, as the operator/manager, manages the “tabbaru” funds of the participants to help each other (risk sharing). In practice, Tabbaru funds contributed by participants in Islamic insurance are only used for 4 (four) things, namely; Ujrah, insurance compensation (risk claims), reinsurance payment and underwriting excess.

Thus, the principle of Sharia insurance is mutual aid (takaful/ta'awun) where each participant contributes to help the other participants in virtue and provides a sense of security when there is a risk between the participants. Therefore, Sharia protection can reinforce a sense of mutual help, brotherhood and cooperation for participants in the concept of risk sharing.

Difference Between Shariah Insurance and Conventional (Non-Shariah) Insurance

The most important difference between Islamic insurance and conventional (non-Sayriah) insurance is the concept of management. Sharia protection has a concept of sharing risk management, while conventional (non-Sharia) insurance transfers risk.

The concept of conventional insurance management in the form of risk transfer is protection in the form of the transfer of the economic risk of death or life from an insured person to an insurance company as a risk carrier. In other words, participants who purchase or enroll as participants in conventional insurance will bear the economic risk of the insurance company.

While risk sharing which is Shariah insurance management is a concept in which participants have the same objective i.e. mutual aid i.e. through investment in assets or tabarru which provides a model of return to deal with certain risks using a Shariah-compliant contract whose management is represented by a Shariah insurance company in exchange for Ujrah.

In addition to these fundamental differences, there are several practical differences between Sharia and conventional protection that you should be aware of :

1. Contract/Agreement/Akad

Sharia insurance contract/contract is a contract of grant (tabbarru type of contract) as a form of ta'awwun (help each other/assume each other's risks between participants) according to Islamic law. While the conventional insurance contract is the contract of coverage by the insurance company of the insurance participant as the insured.

2. Ownership of Funds

Protection Syariah implements co-ownership (collective fund of participants). If a participant suffers a disaster, the other participants will help (provide compensation) through tabarru fundraising. This is part of the principle of risk sharing. This risk sharing does not apply to traditional insurance, where the insurance company manages and determines the client's protection fund which comes from monthly premium payments.

3. Subscription Surplus

The underwriting excess is the excess (positive) difference of the underwriting risk management of the Tabarru funds which has been reduced by indemnification, reinsurance and technical reserve payments, which are calculated over a certain period.

Proteksi Syariah distributes excess subscription to participants in accordance with applicable regulations and pre-agreed product features. Whereas for conventional products there is no underwriting surplus or in other words conventional insurance underwriting profits are part of the insurance company and there is no distribution to insurance participants.

4. Has a Sharia Supervisory Board

Contrary to conventional principles, to ensure Sharia principles, Sharia insurance companies are required to have a Sharia supervisory board which performs the function of supervising compliance with Sharia principles in business activities Sharia financial institutions, including Sharia protection.

5. Do not carry out prohibited transactions in Islamic finance

Transactions in Shariah insurance must avoid the elements of Maysir (luck), Gharar (darkness), Riba & Risywah (corruption).

6. Legal

Investments in the form of Tabarru' are made in accordance with Islamic law, so the investment portfolio will only involve halal instruments.

Sharia insurance products

In its development to meet people's needs for Shariah protection, Shariah insurance products are currently very diverse in the market. With the same goal and spirit and developing the Shariah industry in Indonesia, Manulife Indonesia offers a Shariah-based product i.e. MiSmart Insurance Solution Syariah (MiSSION Syariah) which provides the following benefits :

  • Maximum insurance benefit and optimal Sharia-based investment allocation
  • Total Loyalty Benefits 750%
  • Equipped with health insurance as supplementary insurance
  • Please help through the Tabarru fund and oversubscription

With a variety of benefits provided, the contribution offered by MiSSION Syariah is affordable, starting at IDR 300,000 per month. Affordable, no? Now, completing the comfort of life, sowing blessings and sharing is just a dream.

Advantages of choosing Shariah insurance

By choosing a Shariah insurance product, participants get 2 (two) benefits at once: first, protection for themselves/personally, and second, doing good by setting aside funds to help others. Interesting no?