Get to know Sharia Insurance More Closely
Get to know Sharia Insurance more closely by ITI190 - Insurance Top Info 190.
Sharia insurance is an effort to protect and help each other among policyholders (participants), which is carried out through the collection and management of tabarru' funds which provide a pattern of return to face certain risks through an agreement (engagement) that is in accordance with sharia principles.
Sharia insurance uses the principle of sharing risk, where the risk of one person/party is borne by all people/parties who are policyholders. In contrast, conventional insurance uses a transfer of risk system where the risk from the policyholder is transferred to the insurance company. Therefore, it can be said that the role of a sharia insurance company is to carry out operational and investment management of several funds received from policyholders, in contrast to conventional insurance companies that act as risk bearers. In addition, the contract used in sharia insurance uses the principle of mutual assistance between policyholders and policyholder representatives/cooperation with sharia insurance companies. In contrast, the contract used by conventional insurance is based on the principle of exchange (sale and purchase).
Both conventional insurance and sharia insurance have their respective advantages or disadvantages so that the selection of insurance products is returned to consumers according to their individual needs and abilities. But on this occasion, let's find out more about the advantages of Islamic insurance:
1. Fund management uses Islamic sharia principles
It is a significant difference between conventional insurance and sharia insurance, where the management of funds by a sharia insurance company must comply with sharia principles. Thus, for example, these funds cannot be invested in shares of issuers that have trading/service business activities that are prohibited according to sharia principles, including gambling or production and distribution of haram goods and services based on the National Sharia Council of the Indonesian Ulama Council (DSN MUI).
2. Transparency in the management of policyholder funds
Fund management by sharia insurance companies is carried out transparently, both concerning the use of underwriting contributions and surpluses and the sharing of investment returns. The management of these funds aims to optimize benefits for policyholders collectively and individually.
3. Profit sharing from investment
According to the contract used, the investment returns obtained can be shared between policyholders (participants), both collectively and / or individually, and the sharia insurance company. Thus, it is different from conventional insurance companies whose investment returns belong to the insurance company, except for insurance products linked to investment.
4. Ownership of funds
In conventional insurance, all incoming premiums belong to the insurance company, except for tips on insurance products linked to investments. Thus, a part of the premium is allocated to form the policyholder's investment/savings. Meanwhile, in sharia insurance, the contribution (premium) belongs partly to the sharia insurance company as the fund manager and partly to the policyholder collectively or individually.
5. No 'forfeited funds' system applies
Contribution funds (premiums) deposited as tabarru' in sharia insurance are not forfeited even though there are no claims during the protection period. Funds that the policyholder has paid will still be accumulated in the tabarru' fund, which is the collective property of the policyholder (participant).
6. There is an allocation and distribution of the underwriting surplus
In the sharia insurance sector, the term surplus underwriting is known, which is the difference above the policyholder's total contribution to the tabarru' fund after adding claim recovery from reinsurance minus compensation/claims payments reinsurance contributions, and technical allowances, within a certain period. In conventional insurance, the entire underwriting surplus belongs to the insurance company entirely. Still, in Islamic insurance, the underwriting surplus can be distributed to the tabarru' fund, policyholders who meet the criteria, and insurance companies according to the percentage set in the policy.
For Islamic insurance products, currently available are very diverse and almost the same type as what you usually find in conventional insurance. In general, these insurance products can be grouped as follows:
1. Sharia insurance products that provide benefits in the form of compensation or compensation in the event of a disaster, for example, death, illness, accident, damage and/or loss of property.
2. An insurance product that provides insurance benefits in the form of compensation if the participant dies and the service is in investment returns. In this product, part of the contribution or premium paid by participants will be allocated for tabarru' funds, and the other amount will be assigned to participant investment.
Well, friends, this week's article about Islamic insurance. After knowing in more detail about sharia insurance, friends are certainly increasingly able to determine which insurance products to use based on their individual needs and abilities. So let's get smarter in determining which financial products to use. Respond wisely to your money, competent to manage a prosperous future.
Get to know Sharia Insurance more closely by ITI190 - Insurance Top Info 190.