Definition of Sharia Insurance, Benefits, Types and Why is it Better?


Not only does it offer protection according to the meaning of sharia, sharia insurance provides better benefits than conventional. How does it compare to conventional insurance? Which one is better There is a surplus of profits shared among policyholders that is not found in conventional insurance. There is sharia health insurance that can double-claim. This is the choice to get the best insurance product. Even though it is a country with the largest Muslim population, the development of sharia-based financial products is still limited in Indonesia. 

Data from the Indonesian Life Insurance Association (AAJI) show that the market share of sharia life insurance and sharia life insurance in the third quarter of 2012 was only 3.96 percent. In fact, apart from religious purposes, sharia insurance has advantages that make it the best compared to conventional insurance, namely (1) additional money from profit sharing and (2) sharia health insurance that can double-claim with BPJS and other insurances. It should be noted that the distribution of surplus profits is additional money for participants outside of investment results (if you have insurance plus investment). Last week, I had the opportunity to meet a friend who works as a sharia insurance trainer at one of the largest insurance companies in Indonesia. In that meeting, I received a solid and useful short lecture on how Islamic insurance works. That knowledge is what I want to share in this paper. 

What is Sharia Insurance?

To explain its meaning, we first understand how conventional insurance works. In conventional, the policyholder pays the premium to the insurance company. The company owns the premium and pays the sum insured in the event of a claim. So, in conventional insurance, the risks and profits are in the insurance company. There is a transfer of risk from the participant to the insurance company. Sharia insurance is a type of insurance that uses the concept of Sharia in its implementation, where the concept of risk is shared between insurance participants. To do this, participants pay the contributions collected into a joint account called 'Tabarru'. 

Every time a claim occurs, payment is made by cutting the 'Tabarru'. This collection fund belongs to the participants and not to the insurance company. The process of the relationship between participants in Sharia Insurance coverage is sharing of risk or "bearing each other's risks". If a disaster occurs, all participants in Sharia Insurance will bear each other. There is no transfer of risk from participant to company as in conventional insurance. The role of the insurance company in the concept of Islamic insurance is only as a fiduciary in managing and investing funds from participant contributions. Insurance companies are hired by participants by paying a commission. 

A. Sharia Supervisory Board 

How to ensure that sharia principles are applied correctly? The Indonesian Ulema Council (MUI) forms the National Sharia Council (DSN), which is tasked with overseeing the implementation of sharia economic principles in Indonesia, including issuing fatwas or laws that regulate them. In every Islamic financial institution, there must be a Sharia Supervisory Board (DPS). This DPS is a DSN representative whose job is to ensure that the institution has implemented sharia principles correctly. 

B. Sharia Securities Instruments 

One of the characteristics of Islamic insurance that distinguishes it from conventional insurance is that investments must be made only in Islamic securities, which meet the following two criteria: First, do not carry out business activities that are contrary to sharia principles. These activities include: 

- Gambling and games classified as gambling; trade that is prohibited according to sharia, among others: trade that is not accompanied by the delivery of goods/services; and trading with fake offers/asks; ribawi financial services, including: interest-based banks; and interest-based finance companies; Trading of risks that contain elements of uncertainty (gharar) and/or gambling (maisir), including conventional insurance; 

- Producing, distributing, trading and/or providing, among other things: goods or services of illicit substance (haram li-dzatihi); goods or services that are illegal not because of the substance (haram li-ghairihi) determined by the DSN-MUI; and/or conduct transactions that contain elements of bribery (risywah). Second, comply with the following financial ratios: (1) Total interest-based debt compared to total equity is not more than 82% (eighty-two percent); (2) Total interest income and other non-halal income compared to total operating income (revenue) and other income is not more than 10% (ten percent).

Based on these two criteria, the authorities issue a List of Sharia Securities, which is a collection of Securities that do not conflict with Sharia Principles in the Capital Market, stipulated by the Financial Services Authority (OJK). The DES is an investment guide for investors who want to invest in Sharia Securities portfolios. 

Benefits of Sharia Insurance 

Some of the benefits are as follows:
- Life, accident and permanent disability protection and financial plans according to sharia principles. Through periodic contribution payments, you can determine the amount of coverage benefits. 

- Waiver of Basic Contribution in the event of total disability caused by illness or accident. Participants can enjoy insurance benefits even in situations of total disability. 

- Medical Expense Protection: reimbursement for hospital treatment costs caused by illness and accidents. Equipped with a cashless facility that makes treatment in hospitals easier without cash payments, the service is available 24/7 with a network of partner hospitals throughout Indonesia. 

Profit Sharing

Sharia insurance contributions belong to all participants. This shared fund is used to pay claims. There are two possibilities: (1) the contribution is greater than the number of claims, so there is such a thing as a Profit Surplus; or (2) the claim is greater than the contribution amount, then there is a Profit Deficit. Now this is what distinguishes it from conventional insurance. Surplus Profits are divided under the following conditions: 60% is retained in the Tabarru balance; 30% is given to the participants and 10% to the manager (insurance company). 

Distribution of Surplus Profits to participants is proportional to the contribution. The greater the contribution, the greater the portion of the surplus profits. And vice versa. But, if you look at the proposal, the division of this surplus profit will not be visible. You have to ask the agent or insurance company how and how much the surplus has been divided so far. What if there is a profit deficit. The first is taken from the Tabarru balance. If it's still lacking, a loan with a Qardh contract to an insurance company to cover the deficit. As long as there is a deficit, profit sharing is not carried out. 

Can Double-Claim

In sharia health insurance, participants can take advantage of the protection of hospitalization costs for all family members. The insurance uses a card (cashless) and pays according to the bill. One policy is used for one family, so the premium is cheaper. Compared to insurance that cannot be one policy for one family, because it has to be one policy for one person. There is a sharia health insurance that I found that allows double-claims with other insurances including BPJS. 

Frankly, this is a very beneficial benefit in that health insurance can double claims for hospital bills. The majority of health insurance usually only allows 'coordination of benefits' but not 'double-claim'. What is the difference between double-claim and benefit coordination? This is a way of reimbursing hospital claims if you have two or more health insurance, as follows: 

- Benefit Coordination: insurance pays the remaining bills that have not been paid by previous insurance. For example, the total claim is Rp. 10 million, BPJS only pays Rp. 8 million, while the rest is not guaranteed because participants are upgraded to a higher room class. With a benefit coordination scheme, health insurance pays the remaining Rp. 2 million while still paying attention to the maximum ceiling quota. 

- Double – Claim: health insurance pays directly according to the ceiling, regardless of how many remaining bills have not been paid by BPJS. For example, the insurance ceiling is 10 million, so if a claim like the case above arises, insurance with a double-claim pattern will pay 10 million. The total money received by customers is greater, namely IDR 18 million (8 million BPJS and 10 million double-claims for health insurance). The double claim requirement is easy, that is, it is enough to use a legalized receipt. 

This sharia health insurance that can double-claim provides greater benefits to policyholders. However, it should be noted that not all sharia health insurance provides double-claims. You have to be careful and careful. The agent's promise that the insurance he sells can double-claim must be confirmed to be in accordance with the definition above. 

What I know is that most insurers can only coordinate benefits. Conclusion Initially, I thought that the notion of Islamic insurance was chosen for reasons of worship alone. In fact, after investigating further (thank you friend for the enlightenment), this insurance has a number of other advantages, which make it the best compared to conventional insurance. Surplus profits and sharia health insurance that can double-claim hospital bills are the advantages. Interested in further about sharia insurance, please contact here.

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