Understanding Takaful: An Overview
Takaful is a type of Islamic insurance wherein members contribute money into a pool system to guarantee each other against loss or damage. Based on Islamic religious law, Sharia, Takaful encourages individuals to cooperate and protect one another with mutual responsibility. Takaful policies cover various needs, including health, life, and general insurance.
Key Takeaways
- Takaful is a cooperative Islamic insurance system where members contribute to a mutual pool to support each other.
- Based on Sharia, it covers health, life, and general insurance needs.
- Claims are paid out from the Takaful fund.
The Principles of Takaful
In a Takaful arrangement, all policyholders agree to support one another and contribute to a mutual fund instead of paying premiums. Contributions are based on the required coverage type and personal circumstances, similar to conventional insurance.
A Takaful operator manages the Takaful fund, charging an agreed-upon fee to cover costs like sales, marketing, underwriting, and claims management. Any claims are paid from this fund, and any surplus—after provisioning for future claims—belongs to participants, not the Takaful operator. These surpluses may be distributed as cash dividends or reductions in future contributions.
Takaful’s Operational Principles
- Operates according to Islamic cooperative principles.
- Reinsurance commission is only with Islamic insurance and reinsurance companies.
- Separates funds into participant and policyholder fund, and shareholder fund.
A Growing Market: Takaful’s Expansion
The global Takaful insurance market was valued at $24.85 billion in 2020 and is projected to reach $97.17 billion by 2030, growing at a CAGR of 14.6% from 2021 to 2030. With 60% of the global Muslim population under 25, this young demographic represents a significant potential customer base as their wealth expands over time.
Major Players in the Takaful Market
Some of the leading names in Takaful include:
- Islamic Insurance Company
- JamaPunji
- AMAN
- Salama
- Standard Chartered
- Takaful Brunei Darussalam Sdn Bhd
- Allianz
- Prudential BSN Takaful Berhad
- Zurich Malaysia
- Takaful Malaysia
- Qatar Islamic Insurance Company
Takaful vs. Conventional Insurance
Many Islamic jurists agree that conventional insurance is generally unacceptable in Islam due to non-compliance with Sharia for several reasons:
- Element of Uncertainty (Al-Gharar): Conventional insurance involves uncertainty around the terms and benefits.
- Interest-Based (Riba): Traditional insurance involves the charging of interest, which is prohibited in Islam.
- Gambling Concerns (Al-Maisir): Conventional insurance is considered a form of gambling.
Embracing Takaful for Ethical Insurance Solutions
Takaful ensures compliance with Islamic principles, making it a preferable alternative to conventional insurance for many Muslims globally. By understanding its operations, principles, and benefits, individuals can make informed decisions about their risk management needs.
Related Terms: Sharia, Islamic banking, Riba, Al-maisir, Al-gharar, Islamic Finances.
References
- Institute of Islamic Banking and Insurance. “Islamic Insurance (Takaful)”.
- Allied Market Research. “Takaful Insurance Market Outlook—2030”.
- Research and Markets. “Takaful Market: Global Industry Trends, Share, Size, Growth, Opportunity and Forecast 2021-2026”.
- Research and Markets. “Takaful Market: Global Industry Trends, Share, Size, Growth, Opportunity and Forecast 2021-2026”.
