What is Takaful Insurance?

Islamic insurance, called takaful, allows participants to put money into a pool system to insure one another against loss or harm. Sharia, or Islamic religious law, provides the foundation for takaful-branded insurance and outlines how people must assist and safeguard one another. Takaful plans cover health, life, and general insurance requirements.

Takaful insurance companies were created as an alternative to commercial insurance companies that are thought to break Islamic rules about riba (interest), al-maisir (gambling), and al-gharar (uncertainty). All of these rules are against Sharia.

Recognizing Takaful Insurance

In a takaful arrangement, each policyholder agrees to guarantee the other and contributes to a mutual fund or pool instead of making premium payments. The takaful fund is created from the total number of donations received. The type of coverage each member requires, and their particular circumstances determine how much they will contribute. Like a traditional insurance policy, a takaful contract outlines the kind of risk and the duration of coverage.

A takaful operator manages and administers the takaful fund on behalf of the participants, deducting expenses from the agreed-upon fee. The expenses of claim handling, underwriting, sales, and marketing are similar to those of a traditional insurance firm.

Members’ claims are paid from the takaful fund, and any surplus that remains after accounting for additional reserves and the anticipated cost of future claims belongs to the fund’s members rather than the takaful operator. The participants may receive those monies in cash dividends or distributions, or they may choose to have their future payments reduced.

An Islamic insurance provider running a takaful fund has to follow specific guidelines:

• It has to function based on the cooperative ideas of Islam.
• Only Islamic insurance and reinsurance businesses can obtain or pay reinsurance commissions.
• The insurance firm must keep two distinct funds: one for shareholders and policyholders and another for participants.

Particular Points to Remember

The worldwide takaful insurance market, estimated by Allied Market Research, was worth $24.85 billion in 2020 and is expected to rise at a compound annual growth rate (CAGR) of 14.6% from 2021 to $97.17 billion by 2030.

Young Muslims (those under 25) comprise 60% of the Muslim population worldwide; therefore, if their income increases, this group may provide a sizable consumer base.

A Research and Markets analysis said that some of the biggest brands in the takaful industry were thought to include the following:

• Islamic Insurance Provider
• JamaPunji Standard Chartered, AMAN Salama
• Brunei Darussalam Takaful Sdn Bhd
• Prudential Allianz BSN Malaysian Takaful Berhad, Zurich
• Malaysian Takaful
• Islamic Insurance Company of Qatar.

Conventional Insurance vs. Takaful

The majority of Islamic jurists conclude that traditional insurance violates Sharia and is thus forbidden in Islam for the following reasons:

• There is a certain amount of uncertainty, or al-gharar, with conventional insurance.
• The idea and practice of charging interest are the foundations of conventional insurance. In contrast, Islamic insurance is based on tabarru, where a participant’s share of the payments is considered a charity. For this reason, participants in takaful are often used to refer to policyholders.
• Traditional insurance is seen as a kind of game.

Conclusion

• Islamic insurance (takaful) involves participants contributing money to a pool system to guarantee one another.
• Based on Islamic religious law, or Sharia, takaful-branded insurance covers general, health, and life insurance requirements.
• Participants’ claims are reimbursed from the takaful fund.