What does Islamic Takaful Insurance mean? Everything Explained
Apr 29, 2022 by Amwalcom
Takaful (Islamic insurance) is a type of insurance that you may have heard of, especially in Islamic countries including Jordan. The concept of the Takaful insurance relies on being an alternative to conventional insurance and that is adhering to the teachings of Islamic Sharia'a.
How does Takaful (Islamic Insurance) work?
This Islamic insurance system relies on creating a pool of money; which guarantees that the losses of its contributors will be covered by the money in the pool.
The insurance claims made by the participants are paid from the Takaful fund, and it covers health, life, and general insurance just like how typical insurance works, but with a fund of only people's money.
A takaful contract specifies the nature of the risk and the length of the coverage, similar to that of a conventional insurance policy. Additionally, the amount of money that will be paid by each contributor is also predefined based on specific factors.
The amount a contributor pays relies on the specific coverage they require, based on personal circumstances and other guarantees.
A Takaful fund is managed by an operator, which works on behalf of the participants, with an agreed-upon fee, which doesn't interfere with Islamic Sharia'a.
The costs needed by the operator are the same as typical ones charged by a non-Islamic insurance company, as they include sales and marketing, claims management, and other aspects.
One aspect that differentiates Islamic insurance operators from typical insurance companies is that the money that is not claimed by any of the contributors belongs to the fund and all the contributors, unlike what happens with a typical insurance company that owns this money.
Takaful Islamic insurance's adherence to Islamic Sharia'a
As an alternative to traditional insurance that was developed to abide by the Islamic Sharia'a, there are many aspects of Takaful that are tailored for this purpose.
Traditional insurance is always thought to be related to riba (a special methodology of interest-based earning), maisir (a type of gambling), and al-gharar (uncertainty and risk aspect).
The way Takaful Islamic insurance works, as described earlier, guarantees these issues are tackled.
To abide by the Islamic principles, reinsurance commissions are paid out or received from Islamic reinsurance companies. The operator should also maintain two separate funds, one for participants and policyholders; and a separate one for shareholders.
Many people around the world have found Takaful funds and Islamic insurance a reliable and convincing alternative to commercial insurance, with the Takaful insurance industry estimated at a market value of $24.85 billion in 2020, according to Allied Market Research. It is also expected that this industry will grow to $97.17 billion by 2030.
The verdict
Takaful insurance is a very successful model in Arab and Islamic countries, considering the way it works and how it adheres to Islamic Sharia'a.
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