TAKAFUL
THE ISLAMIC INSURANCE
Dr Imran Usmani
Conventional Insurance
• It means a way to provide security / and
compensation of what is valuable in the
event of its loss, damage or destruction
based on the principle of risk taking and
speculation.
Problems with
Conventional Insurance
1. Gharar ( uncertainty )
Literally Gharar means: Uncertainty; cheating; (Jahalah) ambiguity.
There are two types of Gharar:
1.
Jahalah which causes to dispute. E.g. un specified or
un quantified subject matter in sale.
2. Uncertainty of one party’s profit. E.g. One party’s
(such as policy holder’s) profit in Insurance.
2. Khatar: ( Risk)
Taleequl milki al alkhatr, wal mal fil janibain:
To stipulate ownership (of any amount) on a risk, where both
consideration is money or commodity
Problems with
Conventional Insurance
2. Mayser ( Qimar or Gambling )
Mayser means Qimar in Arabic language.
Mayser has two basic elements which cause to
prohibit Mayser namely:
1. Gharar (2) Khatar
Having the above two elements speculation,
gambling and insurance is prohibited.
Problems with
Conventional Insurance
The participant contributes a small amount of
premium in a hop/risk to gain a large sum is
Khatar.
• The participant loses the money paid for the
premium when the insured event does not
occur is Gharar.
• The company will be in deficit if the claims
are higher than the amount contributed by
the participants is Gharar.
Problems with
Conventional Insurance
3. Riba
• The element of Riba (Interest) exists in lending or
borrowing funds/investments at fixed interest, and
other related practices in the investment activities
of the conventional insurance companies
The Solution
Islamic Cooperative Insurance
( Takaful)
Definition for Takaful
• Takaful is an Arabic word that means
"guaranteeing each other".
• It is a system of Islamic insurance based on the
principle of TA-AWUN (mutual assistance)
and Tabarru (Voluntarily) where the risk is
shared collectively by the group Voluntarily.
• This is a pact among a group of members or
participants who agree to jointly guarantee
among themselves against loss or damage to
any of them as defined in the pact.
Basic Principle behind Takaful
1.The principle of “fortunate many helping the
unfortunate few" is a concept recognized by
Islam.
2.The Quran states in Surah Al-Maidah verse # 2:
"Help ye one another in righteousness and
piety, but help ye not one another in sin and
rancor".
3. Principles of Muwalat, Maaqil, and Kafalah
are examples for its permissibility.
Features
• Firstly, the participation into a Takaful fund must
be performed with utmost sincerity in order to
help those faced with difficulties.
• Every policy holder would pay his subscription in
order to assist those who need assistance
• Any member or participant suffering a catastrophe
or disaster would receive a certain sum of money
or financial benefit from a fund, as also defined in
the pact, to help him meet the loss or damage
Operation of Takaful Fund
• The transactional aspect of the commercial
activity of Takaful must be subject to the Islamic
contractual laws in order to ensure its compliance
with the Shariah .
• The Company involved in takaful business, as the
operator, will accept payment of the takaful
installments or takaful contributions (premium)
from the participants (clients) for the takaful plan
or takaful scheme they wish to participate.
Operation of Takaful Fund
• In order to eliminate the element of “uncertainty”
in the Takaful contract, the concept of tabarru (to
donate, to contribute, to give away) is
incorporated in it. In relation to this a participant
shall agree to relinquish as “gift” certain portion of
his Takaful installments .
• For the service rendered as manager of the Takaful
Operations the company will charge a
management fee.
Operation of Takaful Fund
• The Takaful Fund, consisting of the contributions
paid as Tabarru, will be further invested by the
Company based on the principle of Al –Mudarabah,
through which the element of interest (riba) will be
replaced.
• All premium holders will participate in pofit and loss.
• Profit will be shared on agreed ratio.
Uses of Takaful
Takaful can be used to cover
• Property like house, factory, mosque,
offices
• Vehicles (car, motorcycle etc..)
• Goods ( like during import or export )
• Valuables
• Health, accidents and Life