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In Conventional Insurance, elements of excessive uncertainty are involved. This occurs since the payout and premium are both dependent on the occurrence of uncertain events.   In Islam, this uncertainty is known as Gharar and is prohibited by the Shariah Law.

Takaful is an Islamic insurance concept which seeks to eliminate this uncertainty by creating a contract of donation. In a Takaful contract, an amount of money is donated by each participant into a Takaful Fund. The aim behind these funds is mutuality wherein each party, both the insured and the insurers, are not put at a disadvantage since any risk of potential loss is shared between all participants. This is achieved by making a donation of all or part of the Takaful Contribution to the Takaful Fund. Thus, in the case of a loss, the fund compensates the participants. This contract is known as Tabarru and it helps eliminate uncertainty such as entitlement of compensation and total payment.

In Conventional Insurance, funds pooled from investors are invested in products or equities which are interest-based. This incurrence of riba (interest) is prohibited under Islamic Law as it is considered as greed and selfishness. Instead, insurance in Islam is based on the concept of mutual help.  Islamic Insurance policies operate on the concept of profit sharing which in Islam is known as al-mudarabah, whereby the insured person pays to the insurance company a premium and any subsequently arising profits are shared between the insurer and the insurance company.

In order to maximize fund value, the Takaful Fund is to be invested strictly in Halal activities under non-interest bearing conditions. Takaful Contracts are managed by an appointed agent who provides all the necessary marketing, operational facilities and administrative services required to service the Takaful Fund and the Takaful Contracts. The Takaful Fund is managed by a third party known as the Takaful Operator.

From the above, it transpires that Takaful provides for a Shariah compliant and ethical insurance that is appealing for both Muslims and non-Muslims.


Should you require any further information regarding Takaful and how it varies from Conventional Insurance or you are interested in setting up a Takaful company, kindly Contact Us and we will gladly assist you with any queries you might have.