In the first chapter of this research study, an introduction on insurance will be presented. While, on the other hand, there will be a highlight on the differences between conventional and Islamic insurance. Following this, will be the problem discussion and the objectives of this study. Finally, there will be the justification and significance, following by organization of the study.
Buying insurance has become a trend in this twentieth century. According to The Star daily(2007), in the first half of year 2007, the combined premium income for insurance industry increase 9.8 percent compared to the same period for year 2006. The industry is further expanded in line with the favorable economics performance. People bought the insurance for their car, family, and business. People spend a lot of money on paying the insurance premium annually. While, do they actually clear on what kind of plan they had bought and what had they insured for their life, property and so on? Do they really distinct on the concept of the insurance that they had disbursed so much?
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According to Bank Negara Malaysia, insurance is the transfer of risk by an individual, such as yourself or an organization, such as your business to an insurance company. You or your organization will then be known as policy holder or insured while the insurance company is the insurer. The insurance company receives the payment in the form of premium. Then the insurance company utilized the premium collect from their policy holder to make some investment for their company. They will compensate their policy holder in the event of losses or damages which is sustained by the premium paid.
In other word, insurance is a form of risk management primarily used to hedge against the risk of a contingent loss by paying an amount of premium. It is an effective risk transfer mechanism for insured to exchange their uncertainty financial loss with the certain amount of premium (Ahmad Ali Khan, 2003). This kind of insurance we titled as conventional insurance which is the ordinary type of insurance that accepted by the society in general.
While, other than the conventional insurance which we normally approached to, there are another type of insurance which we called as Islamic insurance. The Islamic insurance was step into Malaysia insurance market since November of year 1984 (Renat Bekkin, 2008). The first Islamic insurance company established in Malaysia was Takaful Malaysia Berhad. Early than that, Islamic insurance has stepping into the market of Sudan and Arab.
Islamic insurance is a mode of financial management which compliance to Shariah law. Islamic insurance is provided under a principle called Takaful. According to Islamic Banking, the term “Takaful” is derived from the Arabic word “Kafaala”
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