Understanding Sharia Insurance: Definition, Principles, and Main Objectives
Pursuing higher education has become increasingly common today, and students are now offered a wide range of study options, including Sharia Insurance (Islamic Insurance).
This major is typically offered only at Islamic higher education institutions, not at general universities. Students in this field learn about insurance and financial management based on Islamic principles, including ethical marketing and risk management aligned with Sharia law.
What Is Sharia Insurance?
Sharia insurance is a risk-sharing system in which participants mutually protect one another by donating part or all of their contributions into a tabarru’ fund. This fund is used to help participants who experience misfortune in the future.
In this system, the insurance company acts only as a trustee (amanah holder) responsible for managing participants’ funds. The company is not the risk bearer, but merely an operator managing the funds in accordance with Sharia principles.
Differences Between Sharia Insurance and Conventional Insurance
Understanding the differences between Sharia-based insurance and conventional insurance is a key part of studying this field.
The most visible difference lies in the basic principles. Conventional insurance operates on a risk transfer system and often includes forfeited premiums if no claim is made. In contrast, Sharia insurance does not recognise forfeited funds, and all financial activities must avoid elements prohibited in Islam, such as riba (interest), gharar (uncertainty), and maysir (gambling).
The Purpose of Studying Sharia Insurance at University
Sharia insurance aims to improve the welfare of the Muslim community and supports broader Islamic missions, including faith (aqidah), economic justice (iqtishodi), worship (ibadah), and social solidarity (keumatan).
By studying this discipline at the university level, students gain a deep understanding of how Sharia insurance operates differently from conventional insurance. The primary goal is mutual assistance and social welfare, not merely profit maximisation.
Legal Framework of Sharia Insurance
The legal framework of Sharia insurance ensures that all practices comply with Islamic law as applied in Indonesia. Sharia insurance companies operate based on Islamic legal principles that are also recognised and regulated by the government.
While aligned with Sharia law, the regulatory framework is derived from multiple authoritative sources and continues to evolve through scholarly and governmental review.
Core Concepts of Sharia Insurance
Several principles form the foundation of Sharia insurance, including:
- Voluntary contribution (tabarru’) without coercion
- Funds are used solely for mutual assistance
- Contributions are not forfeited arbitrarily
- All procedures are based on Sharia-compliant contracts (akad)
Types of Contracts (Akad) in Sharia Insurance
All Sharia insurance companies in Indonesia operate using Sharia-compliant contracts. Students should understand the most commonly used contracts:
1. Tabarru’ Contract
Participants donate contributions as voluntary charity (hibah) into a tabarru’ fund to help others in need. The insurance company manages this fund strictly according to Islamic principles.
2. Tijarah Contract
A commercial contract between participants and the insurance company for profit-oriented activities, conducted within Sharia boundaries.
3. Wakalah bil Ujrah Contract
Participants appoint the insurance company as an agent (wakil) to manage funds, and the company receives a management fee (ujrah) in return.
4. Mudharabah Contract
A profit-sharing agreement where the company acts as mudharib (fund manager), and profits are distributed based on a pre-agreed ratio (nisbah).
Types of Sharia Insurance Products Studied in University
Sharia insurance companies offer various products, including:
1. Individual Takaful
Personal protection and financial planning products, such as investment takaful, Hajj takaful, student takaful, and career takaful.
2. Group Takaful
Group-based protection plans for organisations, including Hajj savings, student accident takaful, travel takaful, group accident takaful, and financing takaful.
3. General Takaful
General protection products such as fire takaful, motor vehicle takaful, engineering takaful, marine cargo takaful, and hull takaful.
Benefits of Studying Sharia Insurance
1. Understanding the Principle of Mutual Assistance
Students learn the Sharia-based concept of risk sharing, where funds are redistributed to participants who experience misfortune, reinforcing social solidarity.
2. Learning a Financial System Free from Riba
Sharia insurance eliminates interest-based transactions and promotes collective responsibility, ensuring financial activities remain ethical and fair.
Studying Sharia insurance provides valuable insight into a financial system rooted in Islamic ethics, mutual cooperation, and social responsibility. It is an ideal field for those who wish to pursue careers in finance and insurance while upholding Sharia principles.
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