Islamic Insurance Takaful
Islamic Insurance – Takaful
Conventional life insurance is based on the concept of buying protection by the policyholders from the insurance companies. A lot of factors being taken into consideration when setting the premium such as average life expectancy and the high risk policyholders in order to generate profit.
A simple example of conventional life insurance is based on the fact that an individual pays 100 USD per months for 20 years while seeking to insure his life for 200 000 USD. If he died during the policy period of 20 years the beneficiaries and the nominee may benefit from the insured sum of 200 000 USD even though he only paid 1000 USD.
In other scenario, he may be alive until the maturity (20 years) and he or his beneficiaries will not receive any benefit at all. This is known as uncertainty which is not in compliance with shariah principle.
In terms of Islamic insurance or takaful, the insurer which is the insurance company is prohibited to indemnify the policyholder/ insured. The reason is because it is not compatible and acceptable under the Shariah principles.
It is prohibited under shariah principle due to the fact of uncertainty or Gharar. The premium paid by the policyholders and the indemnity paid by the insurers are not certain.
Takaful stands as providing mutual contribution and mutual assistance to cover both general and life insurance.
In takaful, as a substitution of the principle of contract for sale of indemnity as in conventional insurance, takaful introduces the concept of contract of donation among the policyholders. This is to convert the uncertainty into something that is acceptable. In Islamic terms, uncertainty is permissible in case of gratuity or unilateral contract such as donation. Donation contract can accept and tolerate uncertainty due to the fact that the purpose of unilateral contract is to avoid any commercial gain.
Conventional life insurance is based on the concept of buying protection by the policyholders from the insurance companies. A lot of factors being taken into consideration when setting the premium such as average life expectancy and the high risk policyholders in order to generate profit.
A simple example of conventional life insurance is based on the fact that an individual pays 100 USD per months for 20 years while seeking to insure his life for 200 000 USD. If he died during the policy period of 20 years the beneficiaries and the nominee may benefit from the insured sum of 200 000 USD even though he only paid 1000 USD.
In other scenario, he may be alive until the maturity (20 years) and he or his beneficiaries will not receive any benefit at all. This is known as uncertainty which is not in compliance with shariah principle.
In terms of Islamic insurance or takaful, the insurer which is the insurance company is prohibited to indemnify the policyholder/ insured. The reason is because it is not compatible and acceptable under the Shariah principles.
It is prohibited under shariah principle due to the fact of uncertainty or Gharar. The premium paid by the policyholders and the indemnity paid by the insurers are not certain.
Takaful stands as providing mutual contribution and mutual assistance to cover both general and life insurance.
In takaful, as a substitution of the principle of contract for sale of indemnity as in conventional insurance, takaful introduces the concept of contract of donation among the policyholders. This is to convert the uncertainty into something that is acceptable. In Islamic terms, uncertainty is permissible in case of gratuity or unilateral contract such as donation. Donation contract can accept and tolerate uncertainty due to the fact that the purpose of unilateral contract is to avoid any commercial gain.