With the ever expanding insurance industry, a segment of the market called takaful insurance has been growing rapidly. However, there are still many people who are still in the dark about what it really is? On some occasions, you may realise some people assume that takaful insurance is an Islamic product open only to Muslims.
So let us give you a better understanding on the subject, by breaking down the terminology and ideas behind takaful insurance to its simplest form so you may make a better informed decision in the future.
What is Takaful Insurance?
Takaful insurance concepts are derived from Syariah concepts which are born from Islamic teachings. While conventional insurance is in no way illegal, there are certain aspects of it that breach Syariah law. Under Syariah compliant insurance policies, it uses Aqad which are actually contracts. These contracts must be free of Riba, Maisir and Gharar. What do these Arabic words mean?
Riba - Refers to interest which are related to the investments made by the insurance companies.
Maisir - Refers to elements of gambling where the business could be unstable and gambling on the outcome of its profit margins.
Gharar- is actually defined as unpredictable conditions that are beyond the control of the company.
Gharar and Maisir are very much inter-related, in that they correspond to anything that leads to too much uncertainty and an inability to be clearly define terms or conditions of its dealings.
To simplify how their investment portfolios work, a takaful insurance company can only invest in halal businesses. Basically they are not allowed to invest in companies that deal in interest, alcohol, gambling or provide too much uncertainty.
How Do You Obtain a Policy?
Just like conventional insurance policies, takaful policies requires an individual to pay for the benefits of being covered. However individuals wanting to be in this pool of coverage end up donating money to the cause, instead of paying for a premium.
These donations are known as Tabarru. The donations are pooled and managed to support those in need. It goes with the concept of sharing the risk, where the the misfortune of the few outweigh the benefits of the many. Meaning whenever an unfortunate incident happens, the pool uses its resources and provides financial aid to the unfortunate few.
Certain takaful insurances also present rebates at the end of the term or upon renewals. How these rebates happen, is that surpluses in the collective fund at the end of the term will be divided back to the participants of the pool on an equal basis.
The second benefit that one receives is non-monetary and is said to be more spiritual. Through the act of donation the participants of the funds are said to enjoy additional blessings from God.
How Do You Choose?
Takaful insurance is not exclusive to Muslims and therefore, a practical and viable option to explore. As always, you should always do your research and familiarise yourself with the product you are going to commit to. Insurance commitments tend to be long term and depending on your needs, a conventional insurance plan could serve better than a takaful based one. Here is an article available on our website regarding takaful motor insurance that could assist you in making a decision should you wish to switch from a conventional one.
If you would like to explore some takaful insurance products, use our comparison tool and check out the medical cards, car insurance and our travel insurance section to apply for one through our website.
Are you currently using a takaful based insurance or a conventional one? Share with us what you think about them in the comments below.