sharia insurance
Also called: takaful
Insurance managed under sharia principles, without elements of riba and gharar.
What it means
Sharia insurance or takaful is risk management based on the principle of mutual help in goodness, with contracts that avoid riba, gharar, and maysir. Participants pay contributions, part of which goes into a tabarru fund for sharing risk, and part for management costs. The company acts as manager, not owner of participants' funds. In Indonesia, sharia insurance is supervised by the financial services authority and has a sharia supervisory board.
Why it matters for families
For Muslim families, sharia insurance is an option so that risk protection aligns with their beliefs. The tabarru fund structure means participants don't just buy coverage but join a shared fund of goodness. Misunderstanding can lead families to reject important protection, or conversely to buy without understanding the contract and its costs. Understand the contribution scheme and benefits before deciding.
Example
For example, a family joins takaful with a contribution of Rp500 thousand per month. Part of the contribution goes into the tabarru fund to cover other participants' claims, and part becomes management costs. If a covered misfortune occurs, the benefit is taken from the tabarru fund according to the contract, not from the company's profits.
Common misunderstanding
Some think sharia insurance is free of costs or guaranteed to be profitable. In fact, there are still management costs and investment returns are not guaranteed; what differs is the contract and the separation of participants' funds.