Insurance

Question 1

WHAT ARE THE DIVISIONS OF INSURANCE?

Answer 1

1. Life Insurance
2. General Insurance
3. Reinsurance

Question 2

EXPLAIN THE BASIC MECHANISM OF INSURANCE

Answer 2

Policyholder transfer loss & risk to the insurance company. The insurance company then promise to pay compensation to the policyholder.

Question 3

WHAT ARE THE CONCEPT OF INSURANCE?

Answer 3

1. Insurance as a business
2. profit maximization
3. profit (underwriting surplus) = total premium (amount contributed by the policyholder) - total claim

Question 4

EXPLAIN GHARAR IN INSURANCE

Answer 4

Gharar: uncertainty - the sale of what is not present

Insurance companies sell protection from unexpected events (we don’t know when the incident will happen). Uncertainty of what the insurance policyholders are paying for.

Contract: Sale of Policy - bilateral contract

Question 5

WHAT ARE THE CONDITIONS OF GHARAR?

Answer 5

1. Type, attribute or quantity
2. Time of delivery
3. Price or mode of payment
4. Ability for delivery

Question 6

TYPES OF GHARAR?

Answer 6

1. Gharar Yasir - unilateral contract; hibah, tabarru’

2. Gharar Fahish - bilateral contract

Question 7

WHAT IS RIBA?

Answer 7

• predetermined excess or surplus over the principle in relation to a specific period
• interest

Question 8

TYPES OF RIBA’?

Answer 8

1. Riba al-Bay’

2. Riba al-Dayn

Question 9

TRADE VS RIBA’?

Answer 9

TRADE

• fair exchange of goods or value
• the fair distribution of risk and return

RIBA

• unfair distribution of risk and return
• unjustified enrichment at the expense of others

Question 10

RIBA’ IN CONVENTIONAL INSURANCE?

Answer 10

1. Unequal exchange of two counter value

2. Invest in non-shariah compliance

Question 11

MAYSIR IN CONVENTIONAL INSURANCE?

Answer 11

Maysir: gambling (based on luck)

Insurance companies operate based on luck. If policyholders don’t have any unexpected incidence, there will be no claim. Thus they will get more underwriting surplus. If unexpected incidence occurs to policyholders they will be compensated. Thus company profits will reduce.