TAKAFUL THE ISLAMIC INSURANCE

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TAKAFUL THE ISLAMIC INSURANCE

• Dr Imran Usmani

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Conventional Insurance

• It means a way to provide security / and
  compensation of what is valuable in the event of
  its loss, damage or destruction based on the
  principle of risk taking and speculation.

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Problems withConventional Insurance

• 1. Gharar ( uncertainty )
• Literally Gharar means Uncertainty cheating
  (Jahalah) ambiguity.
• There are two types of Gharar
• Jahalah which causes to dispute. E.g. un
  specified or un quantified subject matter in
  sale.
• Uncertainty of one partys profit. E.g. One
  partys (such as policy holders) profit in
  Insurance.
• 2. Khatar ( Risk)
• Taleequl milki al alkhatr, wal mal fil janibain
• To stipulate ownership (of any amount) on a risk,
  where both consideration is money or commodity

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Problems withConventional Insurance

• 2. Mayser ( Qimar or Gambling )
• Mayser means Qimar in Arabic language.
• Mayser has two basic elements which cause to
  prohibit Mayser namely
• 1. Gharar (2) Khatar
• Having the above two elements speculation,
  gambling and insurance is prohibited.

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Problems withConventional Insurance

• The participant contributes a small amount of
  premium in a hop/risk to gain a large sum is
  Khatar.
• The participant loses the money paid for the
  premium when the insured event does not occur is
  Gharar.
• The company will be in deficit if the claims are
  higher than the amount contributed by the
  participants is Gharar.

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Problems withConventional Insurance

• 3. Riba
• The element of Riba (Interest) exists in lending
  or borrowing funds/investments at fixed interest,
  and other related practices in the investment
  activities of the conventional insurance
  companies

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The Solution Islamic Cooperative Insurance(
Takaful)
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Definition for Takaful

• Takaful is an Arabic word that means
  "guaranteeing each other".
• It is a system of Islamic insurance based on the
  principle of TA-AWUN (mutual assistance) and
  Tabarru (Voluntarily) where the risk is shared
  collectively by the group Voluntarily.
• This is a pact among a group of members or
  participants who agree to jointly guarantee among
  themselves against loss or damage to any of them
  as defined in the pact.

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Basic Principle behind Takaful

• 1.The principle of fortunate many helping the
  unfortunate few" is a concept recognized by
  Islam.
• 2.The Quran states in Surah Al-Maidah verse
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• "Help ye one another in righteousness and piety,
  but help ye not one another in sin and rancor".
• 3. Principles of Muwalat, Maaqil, and Kafalah are
  examples for its permissibility.

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Features

• Firstly, the participation into a Takaful fund
  must be performed with utmost sincerity in order
  to help those faced with difficulties.
• Every policy holder would pay his subscription in
  order to assist those who need assistance
• Any member or participant suffering a catastrophe
  or disaster would receive a certain sum of money
  or financial benefit from a fund, as also defined
  in the pact, to help him meet the loss or damage

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Operation of Takaful Fund

• The transactional aspect of the commercial
  activity of Takaful must be subject to the
  Islamic contractual laws in order to ensure its
  compliance with the Shariah .
• The Company involved in takaful business, as the
  operator, will accept payment of the takaful
  installments or takaful contributions (premium)
  from the participants (clients) for the takaful
  plan or takaful scheme they wish to participate.

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Operation of Takaful Fund

• In order to eliminate the element of
  uncertainty in the Takaful contract, the
  concept of tabarru (to donate, to contribute, to
  give away) is incorporated in it. In relation to
  this a participant shall agree to relinquish as
  gift certain portion of his Takaful
  installments .
• For the service rendered as manager of the
  Takaful Operations the company will charge a
  management fee.

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Operation of Takaful Fund

• The Takaful Fund, consisting of the contributions
  paid as Tabarru, will be further invested by the
  Company based on the principle of Al Mudarabah,
  through which the element of interest (riba) will
  be replaced.
• All premium holders will participate in pofit and
  loss.
• Profit will be shared on agreed ratio.

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Uses of Takaful

• Takaful can be used to cover
• Property like house, factory, mosque, offices
• Vehicles (car, motorcycle etc..)
• Goods ( like during import or export )
• Valuables
• Health, accidents and Life