4 Basic Differences between Sharia and Conventional Insurance

Asuransi Syariah dan Asuransi Konvensional

Artikel diperbarui pada 27 July 2023.

Before deciding to do insurance, you must be able to understand how sharia and conventional insurance differ. Although both are old-age insurance, they have fundamental differences.

Therefore, before deciding to use one type of insurance for old age. Whether it’s for parents, yourself or family and others, you should have enough understanding.

With sufficient understanding starting from the understanding and differences between the two. That way it will make it easier when you have to choose it. So later you will not regret it because it has been chosen.

Sharia and Conventional Insurance When Seen from Understanding

To be able to know the difference between sharia and conventional insurance, understand starting from the definition first. Each insurance certainly has its own understanding.

Starting from the definition of sharia insurance, this insurance is a service or business in order to provide protection. The protection provided is in the form of mutual assistance between the two parties.

For both parties involved in it, namely the person doing the insurance and also the sharia insurance company itself. So both of them must follow the agreement that has been made before according to the sharia principles that exist in Islamic teachings.

Unlike sharia insurance, conventional insurance adheres to the principle of buying and selling risk as its application. Of course, there will be protection in it and the binding rules are also not based on Islamic teachings.

Differences between Sharia and Conventional Insurance

If asked the difference between sharia and conventional insurance. Certainly seen from the understanding alone will not be enough. Because there are a lot of underlying differences.

So although both are in the form of insurance, but both have rules and also the way of application is very much different. Therefore, people who want to do insurance must be able to know the difference between the two.

By having enough information, in the future you can choose whether to use a sharia or conventional system. Of course, this selection will be much more effective for Muslims because all the rules that bind sharia insurance are based on Islamic teachings.

Moreover, the number of Muslims spread in Indonesia is also very large. Therefore, thinking about the consideration to do sharia insurance must also be taken into account. For more details, here are the differences.

1. Based on the Agreement

In order to know the difference between sharia and conventional insurance. Then these two things can actually be distinguished based on the initial agreement made.

In doing insurance, there will certainly be an agreement or contract that must be done. Please note that these two agreements or contracts have differences, both those using sharia and conventional insurance.

The agreement or form of agreement from sharia insurance is based on the principle of mutual assistance. While sharia insurance has the principle of buying and selling in the process. From the form of the agreement alone already has a much different principle.

2. Based on Fund Ownership

Apart from being seen based on the agreement, the difference between sharia and conventional insurance can also be seen based on the ownership of funds. As a person who wants to do insurance, you must be able to understand this.

So the ownership of funds from sharia insurance will be owned by all insurance participants. This means that the Islamic insurance company is only a manager, and does not have the right to own these funds.

While the ownership of funds from conventional insurance is not the same. Because in this insurance the customers must pay premium funds. This is the same as the principle of buying and selling in general, so both feel equally benefited.

3. Based on Basic Principles

If asked about the most basic differences between sharia and conventional insurance. Of course, it can be seen based on the basic principles of these two insurances.

The basic principle of sharia insurance is that the responsibility is owned by both parties, namely the insurance company and also the participants or insurance customers. This is usually referred to as the term risk sharing.

While the basic principle of conventional insurance itself is that the entire risk is given to the insurance company. The term that exists in this case is referred to as risk transfer.

So based on these two things it is clear that both have very basic differences. Especially regarding the risk responsibility that will be received, so you can choose insurance according to your individual needs.

4. Based on Fund Supervision

In addition to the three things mentioned earlier, there are other differences between sharia and conventional insurance. The difference regulates the supervision of funds managed by each insurance.

In sharia insurance, the supervision of funds is carried out by the Sharia Supervisory Board (DPS). This board will oversee the financial management of insurance carried out, besides that DPS is also under the responsibility of the Indonesian Ulema Council (MUI).

Whereas in sharia insurance, the supervision of funds actually does not have a special supervisor. However, every insurance company that exists must comply with the regulations of the Financial Services Authority (OJK). So it can’t just be done and it’s definitely safe.

Based on the description that has been explained earlier, of course you can see the difference between the two. By understanding the difference between sharia and conventional insurance, it will make it easier to determine the desired insurance.

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