What is Sharia Insurance in Islam

In general, having insurance will really help you in providing protection against risks that may occur as well as financial protection in the future. In the current insurance industry, apart from conventional insurance, we also know Sharia Insurance as an alternative protection solution that is in accordance with Sharia principles.

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Do you know the difference between conventional insurance and sharia insurance? One of the differences lies in the principle, namely that Sharia Insurance prioritizes the principle of mutual assistance and mutual protection between fellow participants, where if one of the insurance participants experiences a risk, there will be compensation paid from tabarru funds as a form of implementing the principle of shared risk. Meanwhile, conventional insurance usually adheres to the principle of transferring risk from the insured to the insurance company.

Currently, Sharia Insurance is well known and more and more people are considering its benefits. However, there are still many people who doubt the halalness of Sharia Insurance. In fact, everything related to Sharia Insurance already has its own laws and fatwas.

 

MUI Fatwa regarding General Guidelines for Sharia Insurance

The National Sharia Council of the Indonesian Ulema Council (DSN-MUI) has issued fatwa No: 21/DSN-MUI/X/2001 concerning General Guidelines for Sharia Insurance, which is the basis for managing Sharia Insurance in Indonesia. Halal Sharia Insurance applies if it is managed based on Islamic law. The insurance legal regulations according to the MUI fatwa are as follows:

1. Contracts in Sharia Insurance
   Sharia Insurance has two contracts, namely the tabarru’ (Grant) contract with the aim of helping fellow participants and the tijarah contract which is used by participants to appoint an insurance company as a clear and transparent manager of tabarru’ funds.
2. Elements of Kindness
   In its management, Sharia Insurance does not contain elements of maysir (gambling), gharar (uncertainty) and usury, and prioritizes the principle of justice, such as risks and profits being distributed equally to all participants.
3. Underwriting Surplus
   The collection of tabarru’ funds originating from participants will be evaluated at the end of each year to determine the value of the tabarru’ funds under management, deficit or surplus. If the value is surplus, then part of the surplus will be given to policy holders who need help and part to the company as manager or known as the underwriting surplus concept.

   In establishing this fatwa on general insurance guidelines, the MUI also considered the need to prepare funds early to anticipate life risks that could occur at any time and insurance is one effort to meet this need.

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Sharia Insurance Law

Different from conventional insurance, Sharia Insurance has a legal basis that is based on Islamic law, starting from the Al-Qur’an, hadith, ijma, qiyas, as well as fatwas from ulama. The following are some of the basic laws of Sharia Insurance in Indonesia:

1. Basic Laws of the Koran and Islam 

The first legal basis is the Koran, as the highest source of law for Muslims.

The proposition about mutual help is stated in the QS. Al-Maidah verse 2 which means, “And help you in (doing) righteousness and piety, and do not help in committing sins and transgressions, and fear Allah, verily, His punishment is very severe.”

2. Legal basis for the MUI fatwa 

Apart from the Koran, Sharia Insurance law in Indonesia also adheres to the MUI Fatwa (Indonesian Ulema Council). Sharia insurance emerged in Indonesia to answer the needs of the majority Muslim community. MUI issued its first fatwa regarding Sharia Insurance in 2001.

In particular, the regulations regarding Sharia Insurance in Indonesia are in the form of the MUI DSN (National Sharia Council) Fatwa. Several DSN fatwas regarding sharia insurance that apply in Indonesia include:

• Fatwa N 21/DSN-MUI/X/2001 concerning General Guidelines for Sharia Insurance.
• Fatwa No. 51/DSN-MUI/III/2006 concerning Mudharabah Musytarakah Agreements on Sharia Insurance.
• Fatwa No. 52/DSN-MUI/III/2006 concerning Wakalah Bil Ujrah Agreements on Sharia Insurance and Sharia Reinsurance.
• Fatwa No. 53/DSN-MUI/III/2006 concerning Tabarru Agreements on Sharia Insurance.

 

3. Legal basis according to the Minister of Finance Regulation

• Sharia Insurance has also been recognized and received official permission to operate in Indonesia, and is based on Minister of Finance Regulation (Permenkeu) No. 18/PMK.010/2010 concerning Basic Principles of Carrying out Insurance and Reinsurance Businesses using Sharia Principles. The rules explain several points as follows:
• Sharia insurance is basically an effort to help or ta’awuni and protect or takafuli that occurs between insurance participants by collecting tabarru’ funds. This aims to minimize future risks.
• The participant funds that have been collected will be managed by an insurance company that operationally follows sharia principles.
• Insurance participants are individuals or business entities who participate in insurance in accordance with sharia principles.

 

Therefore, with the DSN-MUI Fatwa and supervision from the Sharia Supervisory Board, you no longer need to doubt whether Sharia Insurance is halal. So the benefits and advantages of sharia insurance products do not only provide protection and comfort in life. But you can also sow blessings and share with others with sharia insurance.