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Takaful

Takaful, in Arabic, means "to guarantee" or "to mutually help”. Under this concept, resources are pooled to help the poorer members of Islamic society. The concept is in line with the principles of compensation and shared responsibilities among the community under Shari'a law. Members of the community can contribute to a fund that indemnifies members in case of a claim or emergency.  

Conventional Insurance differs from Takaful in respect of the following, among others:  
  • Premium (often called Contribution) is the consideration as in the case of conventional insurance, but claims are settled irrespective of the premium paid. Islamic prohibition of interest (multiplication of money based on the concept of Principal and Interest) is strictly followed in Takaful concept. 
  • Takaful concept takes care to avoid any element of gambling that is against Shari'a laws. In order to eliminate the elements that are contrary to Shari'a, the Takaful concept of insurance is designed on the basis of co-operative or mutual fund management principles. Accordingly, premiums are considered contributions or donations to a fund and remain the property of the assureds or policy holders. As such, the Insurer cannot benefit directly from this fund in terms of underwriting surplus. In the event of any deficit, a kind of benevolent loan, free of interest, will be contributed by shareholders.
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