What is the difference between Sharia Insurance and Ordinary Insurance?

Nowadays, insurance has become a necessity for everyone. With someone having insurance, his life will feel more secure from various risks that may occur in the future.

Especially in this situation full of uncertainty, making more and more people aware of the importance of insurance. This is evidenced by a report from the Indonesian Sharia Insurance Association (AASI) which shows the growth of sharia insurance as much as 3.29% during the pandemic (from the first quarter of 2020 - the first quarter of 2021), even though we all know that the pandemic has had enough of a negative impact on the market. capital, especially shares.

Sharia insurance assets also increased by 7.32%, where in the first quarter of 2020, sharia insurance assets were recorded at IDR 41.12 billion, and in the first quarter of 2021, the asset value had reached IDR 44.136 billion.

This shows the great potential of sharia insurance in Indonesia, and we as Muslims must support the growth of sharia products, including this sharia insurance.

The problem is, in the field, the community is faced with so many insurance options with various advantages, advantages, and promos offered. In general, there are currently two types of insurance on the market: Sharia Insurance (Takaful) and Conventional Insurance

So what's the difference between the two?

Indeed, there are several main differences from Islamic insurance and conventional insurance, including:

1. The contract used

Islamic insurance and conventional insurance use two completely different contracts.

In sharia insurance products, they use a takaful contract (to bear each other's risks), on the basis of tabarrru' (voluntarily) and the intention to help. The concept is, for example there are 20 participants who buy the same insurance product, then their money will be saved and managed by the company. If one of the 20 participants is affected by a disaster, then he or she can ask the company for financial assistance by using the 'collateral fund', on the basis of mutual assistance.

In contrast to conventional insurance, from the beginning they used a sale-purchase contract, aka business. The customer will pay a premium so that the company is willing to take on risks that are not necessarily going to happen in the future.

2. Principles and Processes

Basically, both insurances are used to anticipate various possible risks that could occur in the future. However, they have completely different ways of working and principles.

In sharia insurance, they use the principle of risk sharing where if one participant is affected by a disaster, the other participants will help with the funds that have been collected and managed by the sharia insurance company.

As for conventional insurance, the principle used is to transfer risk (risk transfer). The way it works, the customer will pay according to the agreement, and if one day he experiences a certain risk, then the risk will be borne by the company, in accordance with the applicable agreement.

3. Fund Management

The funds collected in the insurance company will of course be managed in such a way by the company in order to generate profits, which profits can also be used to cover the costs of the risks they will bear.

However, the management of funds between the two companies is different.

In sharia insurance, the funds collected must be managed in accordance with sharia provisions, and all of that is under the supervision of the Sharia Supervisory Board (DSN). The funds collected also do not belong to the company, but still belong to the participants, and the company only acts as a manager who is entitled to intensive (ujroh).

In conventional insurance, the funds paid are already owned by the insurance company, and they will be managed according to the agreement, in order to get maximum profit, both for the company and the customer.

Those are some of the main differences between Islamic insurance and conventional insurance. Hopefully with this we will no longer be confused about the difference between Islamic insurance and conventional insurance.

 

Of course, we as Muslims choose sharia products, right? Let's together advance the sharia economy in Indonesia!