This is the Difference between Sharia Insurance and Conventional My Money – 19 hours ago

Jakarta, CNBC IndonesiaConventional insurance carries out risk management by transferring risk from the policy holder to the insurance company through policy purchases. However, according to sharia principles, risk transfer can be considered uncertain and detrimental to the buyer.

The ulama stated that insurance is still permitted as long as the principles are in accordance with Islamic law. In Indonesia, the Financial Services Authority (OJK) supervises sharia insurance activities, assisted by the Sharia Supervisory Board (DPS).

The way sharia insurance works is actually similar to conventional, but the terms used are different, namely risk sharing or mutual risk sharing.

In sharia insurance, the insurance company acts as a trustee who manages contribution funds deposited by customers. If a customer experiences a disaster, the insurance company will pay the insurance money.

To understand further, here is some important information about sharia insurance that you need to know.

The principle of mutual help

Sharia insurance companies will also provide protection for health care costs, death compensation and compensation but in accordance with sharia principles, namely mutual help (Tabbaru).

The law governing this principle is the DSN MUI Fatwa Number 21/DSN-MUI/X/2001 concerning General Guidelines for Sharia Insurance.


Contracts in conventional insurance are not much different from buying and selling transactions. However, Sharia does not expect that.

There are three contracts in sharia insurance. Agreement based on mutual help and protection (Tabbaru), risk management (Wakalah bil Ujrah), and sharing the results of cooperation (Mudharabah).

In sharia insurance, every contract is of course not allowed to contain any contents gharar (uncertainty), maisir (gambling), usury (interest), as well as other things that are not in accordance with Islamic Sharia.

Management of customer fees

In conventional insurance, contributions are called premiums. However, sharia insurance calls it a contribution.

Sharia insurance companies do not have the right to own funds contributed by customers, they only have the mandate as managers by customers. These funds will also be processed for the benefit of customers in a transparent manner.

How is it different from conventional insurance?

The premium funds deposited will belong to the conventional insurance company. This is because the concept of conventional insurance is the same as the concept of buying and selling, insurance companies are also given the freedom to use these funds in any instrument, including those deemed not halal as long as they comply with the provisions of the agreement.

In conventional insurance, the potential for forfeited funds can occur if the policy holder is still alive when the coverage period ends. However, this is not the case in sharia insurance.

Funds deposited in the form of premiums can still be withdrawn when the policy holder is suddenly no longer able to pay the premiums.

There is an obligation to pay zakat

In sharia insurance, there is an obligation to pay zakat, the amount of which is determined by the amount of profit the company makes.

It is also worth noting that in conventional insurance, there will be no provisions regarding this one matter.

Investment selection

Every insurance company certainly invests the funds they collect in a number of instruments.

Financial instruments in sharia insurance investments certainly cannot conflict with Islamic law. Such as businesses whose activities are considered to have elements of gambling, fake offers/demands, trade that is not accompanied by the delivery of goods or services, usurious financial services, or buying and selling with an element of uncertainty.

Some of the instruments in question are sharia bank deposits, sharia shares, government sharia securities, corporate sukuk, sharia mutual funds, and other sharia securities.

Unlike conventional insurance, conventional insurance can have a portfolio of investment securities in any instrument. Companies have full authority over the funds they collect from policyholders.

There is a surplus of tabarru funds

In sharia insurance, there will be an operational surplus (tabarru funds) whose results will be distributed to policy holders according to the percentage ratio between the company and the policy holder.

This surplus value is obtained from the difference in total contribution funds paid by customers into tabarru’ funds after deducting claims payments, reinsurance contributions and technical reserves.

Different from conventional insurance. The surplus in conventional insurance will of course be the right of the insurance company.

These are some of the differences you should know about conventional and sharia insurance. In essence, the way sharia insurance works is similar to conventional insurance in helping us mitigate financial risks.

[Gambas:Video CNBC]

Next Article

Buy Health Insurance for Children? Try this