Last updated: 29 October 2026
Takaful and conventional insurance can cover the same risks, from hospital bills to car accidents. They differ in who owns the money you pay and, for Muslim families, in who keeps a life payout. When the cover and price are close, you can use these differences to choose. Anyone can buy takaful, not only Muslims.
How Takaful Works
With takaful, what you pay is called a contribution. You and other participants pay into a shared fund, called the risk fund, and that fund pays claims for the group. Part of what you pay goes into it as tabarru' (donation). The risk fund belongs to all the participants together.
The takaful operator runs the fund for you, but it doesn't own it. The operator is paid a wakalah fee for managing the fund, and it may also take a share of the fund's investment profit. To follow Shariah, a takaful plan avoids interest (riba), too much uncertainty in the contract (gharar) and gambling (maisir). A Shariah committee at the operator checks its products against these rules, and the operator can only invest takaful funds in assets that follow Shariah. Takaful operators are licensed under the Islamic Financial Services Act 2013 (IFSA).
How Conventional Insurance Works
With conventional insurance, you pay a premium and the insurer takes on your risk. It promises to pay if something your policy covers happens. Your premium goes into the insurer's fund and belongs to the insurer. There's no fund that policy owners own together.
The insurer pays claims, agent commission and its running costs out of the premiums it collects. Any profit goes to the insurer's shareholders. The exception is a participating (par) life policy. This is a whole life or endowment policy where the insurer shares some of its profit with you each year. It adds this bonus to what the policy pays out. Those bonuses aren't guaranteed.
Conventional insurers are licensed under the Financial Services Act 2013 (FSA). They can invest in a wider range of assets than takaful operators, including bonds and deposits that pay interest.
How Takaful And Conventional Insurance Compare
A takaful medical card and a conventional one can have the same room and board limit and the same annual limit. Compare the cover first. Then use this table to see where they differ.
| Feature | Takaful | Conventional Insurance |
| How it works | Participants help each other through a shared fund | You pass your risk to the insurer |
| What you pay | Contribution | Premium |
| Who owns the money | Participants own the risk fund. The operator manages it. | The insurer owns the premium |
| Main law | Islamic Financial Services Act 2013 | Financial Services Act 2013 |
| How the company earns | Wakalah fee, a share of investment profit and a share of surplus | Premiums minus claims and costs, plus investment returns |
| Investments | Only assets that follow Shariah | Any assets allowed under BNM rules |
| Money left over | Shared with participants. The operator can take up to half. | Goes to shareholders, except bonuses on par life policies |
| If the fund doesn't have enough money | Operator lends the fund money with no interest (qard) | Insurer pays from its own funds |
| Payout for Muslim policy owners | Nominee can keep it as a gift (hibah) or share it as an executor | Nominee receives it as an executor and shares it by faraid |
| PIDM protection | Up to RM500,000 for most benefits, healthcare in full | Up to RM500,000 for most benefits, healthcare in full |
| Who can buy | Anyone | Anyone |
Where Your Takaful Contribution Goes
In family takaful (the takaful version of life insurance), your contribution is split. One part goes into the risk fund as tabarru' to pay death, disability and other claims. Another part goes to the operator as its wakalah fee, taken as a percentage of your contribution. On the AIA i-One Plan, for example, the fee is 40% of the contribution. If your plan includes savings or investment, another part goes into an account in your name.
With investment-linked takaful, that account buys units in an investment fund. The value of these units can fall, as with a conventional investment-linked plan. General takaful, such as motor and travel cover, has no savings part. Your contribution is split between the risk fund and the wakalah fee.
A conventional premium also pays for claims, commission and running costs, but the policy doesn't show a separate management fee. A takaful certificate must state the wakalah fee, how it's worked out and when it's taken. The fee must mainly pay for commission and running costs. Only a reasonable part of it can be profit.
The operator pays commission and running costs from its own money, not from the risk fund. If you buy takaful directly from the operator, online, by phone or at a branch, there's no agent to pay. The operator must give you the commission it saves as a rebate.
How Takaful Surplus Is Shared
Surplus is the money left in the risk fund for the year after claims and other costs are paid. A specialist called an actuary checks the fund and says how much, if any, can be shared. Nothing can be shared while the fund doesn't have enough money.
The operator can take no more than half of any surplus that's shared. AIA PUBLIC Takaful's AIA i-One Plan, for example, shares any yearly surplus 50:50 with participants who made no claim that year, as long as the fund isn't short of money.
Your certificate states how your share is paid. It may go into your bank account or into the savings or investment account in your plan. It may also stay in the risk fund, or go to charity if you agree. Surplus isn't guaranteed, and a year with a lot of claims can mean no surplus.
When The Takaful Fund Runs Short
A lot of claims can leave the risk fund without enough money to pay what it owes. When that happens, the operator must add the missing money straight away, and it can do this by lending the fund money with no interest. This loan is called qard, and the fund pays it back from future surplus. Until it's paid back, participants may receive less surplus, or none. If the fund is short because the operator managed it badly or carelessly, the operator must cover it with its own money, and the fund doesn't repay this.
A conventional insurer pays any missing money from its own funds.
PIDM Cover If Your Takaful Operator Or Insurer Fails
If your takaful operator or insurer fails, Perbadanan Insurans Deposit Malaysia (PIDM) protects your benefits. This applies whether you hold takaful or conventional insurance. Your plan must be issued in Malaysia and in ringgit. Most benefits are protected up to RM500,000, and healthcare benefits are protected in full. On an investment-linked plan, some money from your investment units isn't protected. This includes payouts when the plan ends, when you cancel it and regular income payments.
Who Receives The Payout When You Pass Away
If you're Muslim and buy a conventional life policy, your nominee receives the money as an executor. This means they must share it out by Islamic inheritance law (faraid).
With family takaful, a Muslim participant can choose how each nominee receives the money. A nominee named under conditional hibah (gift) keeps the takaful benefit as their own when you pass away. A nominee named as an executor (wasi) must share it according to faraid. You can name nominees for both roles and split the benefit between them.
Take a RM200,000 payout for a Muslim man who leaves a wife, one son and one daughter, with no living parents and no debts. He names his wife as nominee.
| Who Receives The Money | Conventional Policy (Wife As Executor) | Family Takaful (Wife As Hibah Beneficiary) |
| Wife | RM25,000 | RM200,000 |
| Son | RM116,666.67 | RM0 |
| Daughter | RM58,333.33 | RM0 |
Under faraid, the wife receives one-eighth (12.5%) because there are children. The son then receives twice the daughter's share of the rest. Under hibah, the wife keeps the full RM200,000. You can also split a hibah by percentage, for example 50% to your wife and 25% to each child.If you're not Muslim and own a conventional policy on your own life, you can name your spouse or child. The money is then held in trust for them. Your parent qualifies too, if you have no living spouse or child when you make the nomination. Anyone else you name receives the money as an executor.
Can You Get The Same Cover With Takaful?
Yes. Both offer term life, whole life, medical cards, critical illness, personal accident, car, home and travel cover. You can add riders (extra cover added to a plan) to both. Investment-linked plans are available as family takaful too. Our guide onterm life, whole life and ILPs explains how they differ.
Some takaful plans add benefits linked to Islamic practice. Sun Life Malaysia Takaful's Sun Hajj plan, for example, includes badal Hajj. A registered Hajj service provider performs Hajj for you if you die, become totally and permanently disabled or are diagnosed with one of 36 critical illnesses.
Is Takaful Cheaper Than Conventional Insurance?
Neither is always cheaper. The price depends on the plan, the level of cover and the company's own costs. It also depends on your age, health and job.
BNM requires takaful operators to charge more, add exclusions or limit cover for people who are more likely to claim. A conventional insurer does the same, for example by charging smokers more. Get quotes for the same cover from both before you decide.
Should You Choose Takaful Or Conventional Insurance?
If the cover and price are close, check these points.
| What To Check | Points Towards Takaful | Points Towards Conventional |
| Your faith | You want your cover to follow Shariah | Shariah doesn't affect your choice |
| The payout | You're Muslim and want your nominee to keep it as a gift (hibah) | Sharing it by faraid suits you |
| Money left over | You'd like a share of any surplus and accept it isn't guaranteed | You want a participating whole life policy with bonuses |
What To Check Before You Buy
- Read the Product Disclosure Sheet (PDS) before you sign. Insurers and takaful operators must both give you one. It sets out the cover, exclusions and charges for that plan.
- For takaful, find the wakalah fee and how surplus is paid in the PDS or certificate.
- If a bank sells you takaful, check the operator's name on the PDS. The bank acts only as the operator's agent. The operator issues your certificate and pays your claims.
- Make your nomination when you buy the plan. Review it after you marry, divorce or have a child.
When You're Ready To Compare Plans
RinggitPlus compares medical card plans from different insurers and takaful operators. You can choose to see only the takaful medical cards. Our travel insurance comparison lists takaful plans next to conventional ones. If you're new to insurance, our guide to insurance basics explains how applications and policy documents work.
Frequently Asked Questions
Do takaful contributions qualify for tax relief?
Yes, in the same way as insurance premiums. For Year of Assessment (YA) 2025, family takaful contributions count towards the same RM3,000 relief as life insurance premiums. That RM3,000 is part of a RM7,000 limit you share with your EPF contributions. Medical and education takaful goes under a separate relief of up to RM4,000. Limits can change with each Budget. Check LHDN's current relief list before you file. Our guide to claiming tax relief on your insurance premiums shows how to split a plan across the two reliefs.
Can I cancel a family takaful plan if I change my mind?
Yes. You have 15 days after you receive the certificate to cancel it. This is called the free-look period. The operator must refund your full contribution, minus any medical check-up fee it paid. On an investment-linked plan, the refund can also depend on the value of your units.
What do I get back if I cancel later?
It depends on the plan. On a plan with a savings or investment part, you get the balance of that account and any surplus already given to you. Any charge for cancelling comes off this. The charge can only cover costs the operator hasn't got back yet. A plan with no savings part may pay nothing.
Can my contribution go up after I buy?
On some plans, yes. If your certificate doesn't say the tabarru' rate is fixed, the operator can change it after telling you. Check whether your PDS says the contribution is guaranteed.
Can I switch from conventional insurance to takaful?
Yes, but treat it as buying a new plan. The takaful operator will do a new health check. A condition you've developed since buying your current policy may now be excluded or cost more. You may also have to wait again before medical and critical illness cover starts. Get the new certificate approved before you cancel the old policy.
Can I name anyone as my hibah beneficiary?
Yes. Under conditional hibah, you can name anyone, not only family members. If that person is under 18, someone else receives the money for them. This can be their surviving parent, a trust company you've chosen or another person the law allows.
Who can I complain to if my takaful claim is rejected?
Complain to the takaful operator in writing first. If you disagree with its final decision, you have six months to take your complaint to the Financial Markets Ombudsman Service (FMOS). FMOS is free and handles claims of up to RM250,000. For a larger claim, or if you don't accept the FMOS decision, you can take your case to court. Our guide How To Escalate A Complaint Against Your Bank covers FMOS too. It's about banks, but the same steps apply to takaful operators and insurers.
