Differences Between Takaful and Insurance
September 20th, 2008 / 5 Comments » / by dya
DIFFERENCE BETWEEN TAKAFUL AND INSURANCE (PART I)
From: Dya
Takaful and Insurance have same concept, protecting each other against unpredictable accident and disasters. Some peoples don’t differentiate between those two and look Takaful in same way as insurance, but they are totally wrong. Today we are going to discuss a basic of Takaful and how its is recommended against conventional insurance.
1. Syariah Compliance
Basically, Insurance and Takaful companies normally divide the contributions into two parts, i.e., donations for losses of the fellow policyholders and the other part for investment. The investment part is totally comply with syariah (No Riba (interest), gambling and uncertainty). Therefore, its a MUST for Muslim to choose Takaful to avoid any involvement in unlawful (haram) investment.
2. Good deeds as a value proposition
Tabarru’ or donation can be an attractive value proposition to peoples. The Takaful participants must appreciate the fact that their contribution would be used to help other participants who have suffered a loss in unpredictable incident. This would be especially meaningful to Muslims who believe that helping those in need with the sincere intention of seeking the pleasure of Allah is deemed an act of piety in Islam.
.
The table below shows the difference between Takaful and conventional insurance:
| Takaful | Conventional Insurance |
| Based on mutual co-operation. | Based solely on commercial factors (a type of business). |
| Free from “Riba” (interest), uncertainty and gambling. | Includes elements of interest, uncertainty and gambling. |
| Investment comply with Shariah. | No religious guidance. |
| Full isolation between the Takaful Fund and shareholders’ funds. | Premium paid by policyholder is considered as income to the company. |
| Any surplus in the Takaful Fund will be shared by the Participants. | All surpluses will accrue to the shareholders only. |
| Is a risk sharing tool across the Takaful Fund. | Is a risk shifting tool. |
.
On following PartII, we will discuss in details the main points in the table above.
- End of Part I -
