Members of a takaful contract contribute to a fund that is used to financially support members who suffer a covered loss.
What is meant by Islamic insurance?
Takaful is a sort of Islamic insurance in which participants combine their funds to insure one another. Takaful-branded insurance is based on sharia, or Islamic religious law, and it covers health, life, and other types of insurance. The takaful fund pays out any claims made by participants.
Why do we need Islamic insurance?
Through its sibling company, Howden Takaful Brokers, Howden provides Takaful (Islamic insurance) (formerly known as Malene Insurance Brokers).
Malene has been a Takaful specialist since 1980, and she has extensive experience working with customers in the power and utility, aviation, oil and gas, port liability, marine, banking, and special hazards sectors.
Unlike traditional insurance, where risk is transferred from the insured to the insurer, Takaful insurance involves the participants sharing the mutual risk. Every participant contributes to a Takaful fund. In the event of a loss, the participant will be reimbursed for the full amount of their claim, subject to the Takaful terms and conditions.
The origins of Takaful can be traced back to “Kafalah” (guaranteeing each other). Kafalah has been practiced for over 1000 years.
Takaful gives you access to a group of like-minded people who want to shield themselves against risk. The system is founded on mutual participation and responsibility sharing, with the goal of assisting one another in bearing the load of tragedy.
- Takaful prohibits acquiring a financial benefit at the expense of others.
- Contributions to the Takaful fund are determined by the terms of each member’s coverage, including what is covered and for how long. Each contribution takes into account the specific status and risk profile of each member company.
- The policyholders own any surplus in the Takaful fund (it does not become a profit to the fund).
The Takaful operator manages all investments in conformity with Shari’ah law. The Takaful operator manages these funds on behalf of the participants.
Unlike traditional insurance, Takaful members hold a portion of the Takaful fund. Participants’ contributions are then invested in halal, Shari’ah-compliant funds to generate investment income. If the fund has a surplus, it is distributed among the participants (and, in some cases with the Takaful operator). This results in a win-win situation for all parties involved.
The policyholders split the losses and profits from these funds. If a year goes by without any claims, the “earnings” are distributed.
Each Takaful fund is overseen by a Shari’ah committee. Each year, the committee approves the share ratio.
The Mudarabah model, which is the most extensively used in the Asia Pacific region, is used by the Takaful pools we have access to. The fund manager in the Mudarabah model is entitled to a part of the excess but does not receive a salary or fee for his or her services.
Howden does not run the Takaful pool, but he charges a flat fee for consulting and arranging the fund.
What is the difference between Takaful and insurance?
There are a few other distinctions between the two policies besides the main feature described above. The risk is passed from the insured to the insurer under traditional insurance. Takaful, on the other hand, is built on the principle of shared risk. Each member makes a contribution to a Takaful fund, and in the event of a loss, the participant will be reimbursed for the amount of their claim.
Furthermore, unlike traditional insurance, Takaful participants own a portion of the fund. Participants’ contributions are then invested in ‘halal’ or Sharia-compliant funds to generate investment income. If the fund earns a profit, it is divided among the participants and, in some situations, with the Takaful operator. This results in a win-win situation for all parties involved.
Is Islamic insurance halal?
POLICIES OF ISLAMIC INSURANCE Because takaful is considered halal in Islam, any insurance policy that follows the principles of takaful should be considered legal as well.
Is insurance legal in Islam?
The Islamic Fiqh Academy (India) decided that taking out health insurance policies was banned at a meeting to discuss whether it was acceptable under Islamic law Shariat. According to them, health insurance plans have turned a noble duty into a commercial activity, and hence are prohibited under Islam.
What is Takaful Islamic insurance?
Takaful is an Islamic insurance system that functions similarly to traditional insurance in that all members pool their funds and share risks according to mutual agreement, cooperation, and contribution regulations.
Is takaful car insurance halal?
The following are some of the key distinctions between automobile takaful and traditional car insurance services available in Pakistan:
- The Funding System: Traditional car insurance is based on a sort of risk transfer management in which the risk is transferred from the insured vehicle to the policyholder through the premium paid. Takaful insurance, on the other hand, is based on the mutual benefit of the policy provider and the car owner. A common pool is another name for this shared funding. The organization that provides takaful services is the pool’s manager.
- Surety: There is a lot of uncertainty in traditional vehicle insurance, and this is something that Islam doesn’t like either. This unpredictability is linked to the investment of the premium money into sources that can yield both profit and loss. While there is less uncertainty in automobile takaful since the money you pay in premiums will be invested in halal means of making money or profit where good returns are guaranteed or have clear grounds. It’s also known as a conditional donation for a good cause.
- In traditional car insurance, there are more aspects of investment with the amount paid by car owners in terms of premium but with the expectation that a handsome amount in terms of compensation will be paid in such a case if the loss they are expecting does not occur and their car is not involved in an accident or suffers serious damage, they will lose the amount they have paid in the name or premium. If you opt for automobile takaful services, on the other hand, the benefits of the paid premium will not be lost from the insurers or the car owner if there is no such catastrophic incidence. Rather, both parties agree to a predetermined arrangement for sharing the money when the policy period ends.
- Any profit earned on the paid premium is owned by the shareholders under traditional automobile insurance, and the policyholder or owner of the car receives no return at the end of the day. When it comes to automobile takaful, the participants will receive a surplus amount in the form of a relationship of sharing contribution as agreed to be completed by the conclusion of the contract.
Overall, there is a clear distinction between vehicle takaful and traditional auto insurance, including the basic concept, benefits, and principles, as well as investment activities that assist the customer in identifying and selecting the appropriate one based on their preferences and needs. Only by reconsidering one’s needs and demands, as well as the benefits they hope to gain from the investment, can one make a better selection.