Differences Between General and Sharia Insurance, You Must Know!
Differences Between General and Sharia Insurance — You need to know the differences between general and sharia insurance, especially if Blibli Friends are deciding to choose one of them. The most basic difference between the two is the principles used and various other concepts. In addition, each has advantages and disadvantages which are also their differences.
Come on, before deciding which insurance to use, Blibli Friends can immediately find out the differences. See the differences between general insurance and sharia insurance in the following review.
General insurance and sharia insurance have differences in various aspects, which when summarized become their advantages and disadvantages. Therefore, now let's see what the meaning is, along with the advantages and disadvantages of each.
Definition of General Insurance
General insurance or conventional insurance is a type of insurance with the main way of working using the principle of buying and selling risks or the term transfer risk. In the general insurance system, the insured registers as an insurance participant, then pays a premium so that the economic risk is transferred to the insurance company.
For example, you have a health insurance premium. Then, you are being hospitalized. So, the insurance owner will cover the costs for your hospitalization, until you return home from the hospital, by following the terms and conditions that have been set.
To better understand the system in detail, here is how general insurance works in full:
Using the concept of Transfer Risk management, namely protection by transferring economic risk for the insured person to the risk bearer, namely the insurance company.
Using a coverage contract from the insurance company to the insured, namely the insurance participant.
Ownership of funds is determined by the insurance company, which also manages and determines the funds that are taken from the premiums paid each month.
Without using an underwriting surplus for insurance participants, where the insurance company does not share the more positive difference obtained from underwriting risk management for Tabarru funds that have been reduced by costs.
Does not have a Sharia Supervisory Board in implementing insurance principles, but is supervised by the Financial Services Authority.
Advantages of General Insurance
General insurance or conventional insurance has advantages including:
Provides many options for managing funds.
Prioritizes buying and selling practices with offers of large profits.
There are additional bonus offers for insurance participants if they do not make a claim until the policy is finished.
Disadvantages of General Insurance
There are also disadvantages to general insurance or conventional insurance, including:
There is also a risk of insurance funds being forfeited if participants do not make a claim until the policy is finished.
Participant funds and insurance companies are combined and there is no separation for the funds.
There is no guarantee or replacement if the insurance participant's funds are forfeited.
There is often a risk of claim fraud.
General Insurance Recommendations
If you want to use general insurance, here are some recommendations:
AIA Financial Indonesia: one of the most trusted insurance companies in Indonesia. AIA has served and provided assistance to families in Asia for more than 100 years until now.
Manulife Indonesia: an insurance company that serves 2.5 million customers in Indonesia with a growing number of participants, providing financial services including life insurance, health and accident insurance, investments and pension funds. Taspen Life: a subsidiary of Taspen that provides life insurance services and has served the Indonesian people since 2014.
Definition of Sharia Insurance
Sharia insurance is also called takaful, which means an effort to help each other and protect each other between policyholders, meaning participants or customers. The method is to collect and manage funds as a guarantee of a return pattern if a certain risk occurs.
This sharia insurance is carried out by making a contract agreement that follows sharia principles. If conventional insurance participants pay premiums to the company which then manages and determines the amount of protection funds from the monthly premium, then sharia insurance manages funds as joint property of the insurance participants.
This means that if one of the participants or customers of sharia insurance experiences a risk, then the other participants will manage funds to help and the funds are used to share the risk they experience. Then, the funds will be distributed and the one who distributes them is the sharia insurance manager.
In order to understand the working system of sharia insurance more easily, here's how it works:
Using the Sharing Risk system with the concept that participants have one common goal, namely helping each other by investing assets or called tabarru with a return pattern to face risks with a sharia-compliant contract.
The management of Sharing Risk is entrusted to the sharia insurance company by providing Ujrah rewards.
The contract or contract uses a grant contract which is a type of tabarru contract, as a manifestation of ta'awwun or helping or bearing the risks of the participants, according to Islamic law.
Ownership of funds with a joint or collective system from the participants. If a participant faces a risk or is hit by a disaster, the other participants will provide assistance through the tabarru fund pool, all of this runs according to the principle of sharing of risk.
There is something called an underwriting surplus which means a positive or excess difference from the underwriting risk of the tabarru fund which has been reduced by compensation costs, reinsurance and technical reserves, where all are calculated in 1 period.
The underwriting surplus is distributed by the sharia insurance company to participants through regulations and product features according to the previous agreement.
Have a Sharia Supervisory Board to ensure the implementation of sharia principles for its business activities.
Not conducting transactions that are not permitted in sharia finance, such as elements of maysir or gambling, gharar or uncertainty, and usury and risywah or bribery.
Investments in the form of tabarru that follow Islamic law, so the investment portfolio only uses halal instruments.
Advantages of Sharia Insurance
The advantages offered by sharia insurance include:
Insurance management by implementing sharia principles.
Supervision is carried out directly by the Sharia Supervisory Board.
Using a mechanism that does not harm customers and companies.
A profit sharing system is available.
Disadvantages of Sharia Insurance
Sharia insurance also has disadvantages to consider, including:
The benefits are limited when compared to conventional insurance.
Public understanding is still minimal about sharia insurance.
The types of insurance products available are limited.
Disbursement of funds for risk management takes a little longer.
Sharia Insurance Recommendations
If you want to choose sharia insurance, here are some recommendations:
Takaful: Provides inpatient and outpatient benefits as well as dental care, health insurance and life insurance in 1 policy.
Prudential Syariah: Prudential's sharia insurance unit with products including life insurance, health insurance, education and others.
Manulife Syariah: Offers the flagship product MiSmart Insurance Solution Syariah with unit link life insurance benefits and additional rider options according to needs.
