Closer To Know Sharia Insurance

 CLOSER TO KNOW SHARIA INSURANCE

Sharia insurance is an attempt to protect and help each other among policyholders (participants), which is carried out through the collection and management of tabarru funds that provide a return pattern for dealing with certain risks through contracts (agreements) that are in accordance with sharia principles.

Islamic insurance uses the principle of sharing of risk, in which the risk from one person/party is borne by all people/parties who are policyholders, while conventional insurance uses a transfer of risk system in which the risk from the policyholder is transferred to the insurance company. It can be said that the role of an Islamic insurance company is to carry out operational and investment management of a number of funds received from policyholders, in contrast to conventional insurance companies which act as risk bearers. The contract used in sharia insurance uses the principle of mutual help between fellow policyholders and the policyholder's representative/cooperation with the sharia insurance company, while the contract used by conventional insurance is based on the principle of exchange (buy-sell).

Basically, both conventional insurance and Islamic 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 sharia insurance:

1. Fund management uses Islamic sharia principles

This is one of the significant differences between conventional insurance and Islamic insurance where the management of funds by Islamic insurance companies must comply with Islamic principles. For example, these funds cannot be invested in shares of issuers that have trade/service business activities that are prohibited according to sharia principles, including gambling or activities for the production and distribution of illicit goods and services based on the National Sharia Council of the Indonesian Ulema Council (DSN MUI).

2. Transparency in the management of policyholder funds

The management of funds by sharia insurance companies is carried out in a transparent manner, both in terms of the use of underwriting contributions and surpluses as well as the distribution of investment returns. The management of these funds aims to optimize profits for both collective and individual policyholders.

3. Sharing of investment returns

The investment returns obtained can be shared between the policyholders (participants), both collectively and/or individually, and the sharia insurance company, according to the contract used. This is different from conventional insurance companies whose investment returns belong to the insurance company, except for insurance products linked to investments.

4. Ownership of funds

In conventional insurance, all premiums that come in are the property of the insurance company, except for premiums on insurance products linked to investments where there is a part of the premium allocated to form investment/savings of policyholders. Meanwhile, in Islamic insurance, part of the contribution (premium) belongs to the Islamic insurance company as the fund manager and partly belongs to the policyholders collectively or individually.

5. The 'forfeited funds' system does not apply

Contribution funds (premiums) that are deposited as tabarru' in sharia insurance are not forfeited even though there are no claims during the protection period. The funds that have been paid by the policyholders will still be accumulated in the tabarru' fund which belongs to the policyholders (participants) collectively.

6. There is an allocation and distribution of underwriting surplus

In the sharia insurance sector, the term surplus underwriting is known, which is the difference in excess of the total contribution of policyholders to the tabarru' fund after adding claim recovery from reinsurance deducting compensation/claim payments, reinsurance contributions and technical allowances, in a certain period. In conventional insurance, the entire underwriting surplus belongs to the insurance company wholly, but in sharia insurance the underwriting surplus can be distributed to tabarru' funds, policyholders who meet the criteria, and the insurance company according to the percentage specified in the policy.

For sharia insurance products, there are currently a wide variety of products available and the types are almost the same 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, such as death, illness, accident, damage and/or loss of property.

2. Insurance products that provide insurance benefits in the form of compensation if the participant dies and benefits in the form of investment returns. In this product, some of the contributions or premiums paid by the participants will be allocated to the tabarru' fund and the other part will be allocated to the participants' investments.

So, Friend, Attitude, that's this week's article about sharia insurance. After knowing more details about the sharia insurance, you are certainly more able to determine which insurance product to use based on your individual needs and abilities. Let's be smarter in determining the financial products to use. Treat your money wisely, smart to manage, prosperous future.