The Difference Between General Insurance and Sharia Insurance

Insurance is a form of financial protection provided by an insurance company to its customers. This protection can be in the form of protection against financial risks that may occur in assets, property, or a person’s life. There are two main types of insurance available in Indonesia, namely general insurance and Islamic insurance. While both offer similar protection, there are fundamental differences between the two. In this article, we will discuss some of the differences between general insurance and Islamic insurance.

Definition of General Insurance

General insurance is a form of conventional insurance that offers financial protection to its customers from risks related to property, vehicles, health, and others. General insurance works by paying a premium set by the insurance company and then claiming money from the insurance company if an adverse event occurs.

Definition of Sharia Insurance

Sharia insurance is a form of insurance based on Islamic sharia principles. Islamic insurance companies obtain funds from customers by selling investment shares and channeling them into halal projects. This company then pays customer claims in case of loss in accordance with sharia principles.

The Difference Between General Insurance and Sharia Insurance

There are several basic differences between general insurance and sharia insurance, namely:

Sharia principles

One of the biggest differences between general insurance and Islamic insurance is the principles that both follow. General insurance is based on principles set by the government or regulatory agencies. Meanwhile, Islamic insurance is based on Islamic sharia principles which prohibit usury, speculation and gambling.

Premium Determination

Determination of the premium is also a fundamental difference between general insurance and Islamic insurance. General insurance companies determine premiums based on risks that may occur to customers. Meanwhile, sharia insurance companies determine premiums based on sharia principles, such as fairness and transparency.

Investment

General insurance companies usually invest their customers’ premiums in the stock or bond market. Meanwhile, sharia insurance companies obtain funds from customers by selling investment shares and channeling them into halal projects.

How to Manage Funds

The way funds are managed is also the difference between general insurance and Islamic insurance. General insurance companies manage customer funds and profits in a conventional way, namely by investing customer premiums in the capital market and benefiting from bank interest. Meanwhile, sharia insurance companies manage customer funds based on sharia principles and ensure that all investments made are halal and do not violate sharia principles.

Claim Handling

Claim handling is also the difference between general insurance and Islamic insurance. General insurance companies usually have complicated rules and procedures for handling customer claims. Meanwhile, sharia insurance companies process customer claims quickly and efficiently in accordance with sharia principles.

Customer Engagement

Islamic insurance companies involve more customers in the decision-making and investment process. This is in accordance with sharia principles which require transparency and fairness in every transaction. Meanwhile, general insurance companies tend to be more rigid in their decision-making and investment processes.

Profit Sharing Pattern

Islamic insurance companies use profit sharing patterns in profit sharing between insurance companies and customers. This is different from general insurance companies that use a fee-based system in determining the premium amount.

Additional Protection

Sharia insurance companies usually offer additional protection to customers, such as life, property and health protection with a transparent and fair system. Meanwhile, general insurance companies usually only offer asset or property protection.

Advantages and Disadvantages between General and Sharia Insurance

difference between general insurance and sharia
General insurance and sharia insurance have their respective advantages and disadvantages, below are some of them:Advantages of General Insurance:
    • More Flexible: General insurance offers flexibility in choosing the type of insurance and benefits that suit individual or business needs.
    • Cheaper: The cost of general insurance premiums is cheaper than sharia insurance because there are no additional fees for managing the funds invested.
    • Faster Claim Settlement: General insurance has a faster and more efficient claim settlement process because it has a more standardized risk management system.
Disadvantages of General Insurance:
    • Less In Accordance with Religious Principles: General insurance sometimes offers products that are not in accordance with certain religious principles, such as health insurance products that contain elements of usury or interest.
    • Lack of transparency: General insurance sometimes has policies and additional fees that are not very clear and can lead to dissatisfaction at the time of settlement of claims.
Advantages of Sharia Insurance:
    • In accordance with Religious Principles: Sharia insurance products are designed according to Islamic religious principles which avoid elements of usury or interest so that they are more suitable for the needs of individuals or businesses that apply certain religious principles.
    • Transparent: Islamic insurance has a more transparent risk management system, so that additional policies and fees can be explained more clearly.
    • Sharing Benefits: In Islamic insurance, the funds invested are used for the common good, so that profits are shared by all insurance participants.
Disadvantages of Sharia Insurance:
    • More Expensive Premium Fees: Sharia insurance premiums tend to be more expensive than general insurance due to additional costs for managing the funds invested.
    • Less Flexible: Islamic insurance offers products that are less flexible because it only offers products that are in accordance with certain religious principles and not all types of insurance are available in Islamic insurance.

Examples of cases between general insurance and sharia

A successful businessman named Budi decided to buy insurance to protect his business from unexpected risks. After doing research, Budi found that there were two types of insurance available, namely general insurance and sharia insurance.Budi wants to choose the insurance that best suits his business principles and needs. After careful consideration, Budi decided to choose general insurance because the policies and benefits offered were more suitable for his business needs.Some time later, Budi’s business suffers heavy losses due to an unexpected natural disaster. Budi then filed a general insurance claim to cover the loss. However, after some time, Budi was dissatisfied with the settlement of the claims he received because there were several additional costs which were not explained clearly.On the other hand, Budi’s friend who is also a successful entrepreneur chooses sharia insurance to protect his business. When his business suffered losses due to the same natural disaster, Budi’s friend felt very helped by the sharia insurance he chose. In addition to a more transparent settlement of claims, Budi’s friend also feels calmer because the benefits and insurance policies are in accordance with his religious principles.From the examples above, it can be seen that there are fundamental differences between general insurance and Islamic insurance. Although both types of insurance have the same goal, which is to protect against unexpected financial risks, the principles and policies that are applied are different. Therefore, it is very important to choose the type of insurance according to personal needs and principles to ensure adequate financial protection in the future.

Conclusion

In conclusion, there are several basic differences between general insurance and Islamic insurance, such as the principles followed, premium determination, investment, how funds are managed, claims handling, customer involvement, profit sharing patterns, and additional protection offered. Therefore, before choosing the right insurance, it is important to understand the difference between general insurance and Islamic insurance and consider the needs and principles you want to follow.
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