Sharia Insurance, Financial Planning What is Sharia Insurance?

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Indonesia has a very large Muslim population, and whilst insurance is not prohibited, Muslim people need to ensure that their insurance policies comply with the Islamic Laws and principles.

Sharia insurance is overseen by Indonesia Sharia Supervisory Board (DPS) to make sure that every product owned by each company meets the requirements under the Islamic Law. In Indonesia, you can purchase Sharia insurance from a Sharia insurance company, or a Life/General insurance company like Chubb that offers Sharia-based insurance products. 

Sharia Insurance vs Conventional Insurance

Sharia and conventional insurance have similar objectives. However, Sharia insurance has a different mechanism as compared to conventional insurance. Sharia insurance uses the sharing of risk principle, where the risk against one person is borne by all people (policyholders), while conventional insurance uses a transfer of risk principle where the risk from the policyholder is transferred to the insurance firm.

Sharia Insurance Mechanism in Indonesia

Sharia insurance is an effort to protect and help policyholders, with Sharia principles[1]. In short, Sharia insurance uses the mutual support principle where the contribution (premium) paid by the policyholder is used to help other policyholders cover the cost of the risks specified in their policy provisions.  

In Sharia insurance, the premiums paid by the policyholders are combined into a pool of fund that is managed by the insurance company, hence the company is simply a fund manager and doesn’t own the premiums. The contribution is partly owned by the Sharia insurance firm as a fund manager and partly belongs to the policyholder collectively or individually.


Investment returns for Sharia Insurance

The investment returns obtained are often divided between policyholders, both collectively and/or individually and with Sharia insurance companies, according to the ‘akad’. This differs from conventional insurance companies, wherethe investment returns belong to the insurance firm, except for insurance products consisting of investment element.

Profit sharing is also administered proportionally, not equally, based on contribution value (premium) paid by the customer. The bigger the contribution value, the greater portion of the profits the customer can obtain.

Types of Sharia Insurance

1. Sharia Life Insurance

Sharia life insurance protects the insured against the risk of death by providing a lumpsum payment to the beneficiaries when the insured dies. 

2. Sharia Health Insurance

Sharia health insurance will cover the medical cost for policyholders using Sharia principles.  The insurance company will cover the cost of treatment if the insured is admitted to the hospital. 

3. Other Sharia Insurance Products

In addition to life and health insurance, other Sharia insurance products in Indonesia are Sharia general insurance products (e.g. vehicle, property and travel insurance, etc.) and Sharia reinsurance (insurance for insurance companies).


1 Sharia Principle:

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This article was written by Aulia Akbar CFP®️, AEPP®️, Lifepal Financial Educator and Lifepal Financial Planner, as part a of partnership with Chubb Life Insurance Indonesia and the insurance marketplace

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