What is Takaful or Islamic Insurance?
Unforeseen events and emergencies can happen to anyone. It can lead to the loss of a loved one or some prized possessions. Humans have always been planning for their future. In order to protect ourselves from such situation and assure that we will get some financial support, we buy insurance. There are different types of insurance policies but the one known in Islam is Takaful or Islamic Insurance. Takaful Insurance is basically providing guarantee in an Islamic way.
Definition of Takaful:
Takaful is based on the laws of Sharia or Islamic principles. It is a system in which money is pooled and invested. Islamic Insurance is a mutual risk transfer arrangement in which both parties will share the profit and loss equally. Here we have everything you need to know about it.
Principles of Takaful Insurance:
The main ideology is to bear other person’s burden and there is no profit in this system. Some of its’ important principles are as follows:
- For the common good the policyholders will corporate with each other.
- The contribution of the policyholders is considered donations.
- To help those who need assistance, all their policyholders will pay their share.
- The liabilities are shared according to the pooling system of the community and losses are divided.
- According to compensation and subscription, there is no uncertainty.
There are two types of takaful, and they are family and general takaful. Islamic Insurance is a detailed subject and which is fully covered in the Islamic banking courses online. Credits earned during these courses may be transferred to mba Islamic banking and finance program.
Differences Between Takaful and Conventional Insurance:
- The conventional insurance is a contract between two parties whereas takaful Insurance is a relationship in which everything is shared.
- In insurance, everything is planned according to the profit that each party will earn, however, earning profits is not the major purpose of Islamic Insurnace concept.
- In takaful, both parties will equally divide the burden whereas in insurance one party will take the risks for other.
- In insurance, there is no guarantee that whether you will get the help when required or not. In Islamic Insurance, every procedure is guaranteed.
- It is based on the sharia in Islam whereas insurance follows the rules formulated consider profit in mind.
- Number of policies that you have to buy for protection are usually lesser if compared with conventional insurance policies.
- Takaful will cover you for every major and minor loss whereas in conventional insurance you will be covered for certain emergencies.
Historical Background of Sharia Insurance:
Since 622 AD the concept of has been practiced in different forms. The foundation of the insurance in Islam was laid with the help of sharing the responsibilities between the Muslims. In 1976 a Fatwa was issued by the Higher Islamic Council of Saudi Arabia that Takaful is legitimate as compared to the conventional insurance.
Since then considering the Islamic values the rules and regulation for the Takaful have been formulated. Based on this concept in 2008 the Islamic industry grew from $1.3384 billion to $5.318 billion. There are more than 133 companies that are working on these rules. The leading countries are the Gulf States and Malaysia.