Definition and Basic Concept of Islamic Insurance

1.      The Definition of Islamic Insurance

Islamic Insurance is defined as a mutual guarantee of the risks among the members of insurance, with the result; everyone is being the insurer of others and vice versa. It is done, based on mutual helping of kindness, with the policy, everyone has to pay a tabarru’ (donation) for indemnifying for that risks

The other definition of Islamic Insurance is descriptive of a pact or practice among a group of members, called participants, who agree to jointly guarantee themselves against any loss or damage that may fall upon any of them as defined in the pact. In the event of any member or participant suffer a loss due to the defined mishap or disaster, he or she would receive a certain sum of money or financial benefit from tabarru’ as defined under the pact to help meet or mitigate that loss.

2.      The Basic Concept of Islamic Insurance

Based on some foregone definitions, the writer can conclude that the concept of Islamic Insurance is taken from the concept of mutual and co-operative insurance. This form of insurance is the alternative available to Muslims to replace modern commercial insurance.

In the Islamic teaching, helping the orphans, the people who suffer the disaster, death, and loss is absolutely recommended. It means that the mutual contribution to shift the burden of others in Islam is hoped, and here it is the real brotherhood called by ta’awun (mutual helping), itsar (selflessness) and ukhuwah (Islamic brotherhood). The concept of mutual helping mentioned in His verse:

وَتَعَاوَنُوا عَلَى البِرِّ وَالتَّقْوَى وَلاَ تَعَاوَنُوْا عَلَى الإِثْمِ وَالْعُدْوَانِ   

“Help you one another in Al­Birr and At­Taqwa (virtue, righteousness and piety); but do not help one another in sin and transgression”.

Intrinsically, this concept is applied by Islamic Insurance transparently, so that the deception elements must be eliminated. With consequences, every participant of insurance has to cast aside partly its money for tabarru’ with intention for mutual helping. This fund represents the mutual fund for participants, the company is only as organizer and owner of trust; it means that the function of company is performing the trust from all participants to manage their deposits according to shari’a and expected to make a profit. Whereas the fund of tabarru’ managed to overcome the possibility of everyone’s accidents humanly.