Your guide: Takaful versus Conventional Insurance
Takaful vs Conventional Insurance
In Arabic, Takaful means ‘solidarity and cooperation among group of people’. Takaful insurance is a form of co-operative insurance in compliance with Islamic Shariah, which is based on the concept of shared contributions and mutual co-operation between the participants to compensate one another in case of loss.
Takaful insurance parties include “participants” and “Takaful fund operators”, which corresponds to “the insured” and “the insurer” in conventional insurance.
Takaful is based on the following concepts:
· Tabarru’: which means donations
· Mudaraba: it is where one side contributes the money and the other manages it
· Wakala: it describes a delegated authority where one side mandates the other (agent) to perform a specific job on his behalf.
· Taawun: which means collaboration
Participants pay the contributions on a voluntary basis as a donation to a shared Takaful fund, providing protection for each member against combined risks and sharing surplus equally. The company will manage and operate the Takaful fund on their behalf with no prior expectations of fixed returns.
How is Takaful different from conventional insurance?
We at Takaful Emarat provide products based on the concept of Takaful, which differs from the conventional insurance in the following aspects:
· Under Takaful, capital is only invested in funds that are fully Shariah compliant.
· Takaful ensures that no one member can gain an advantage at the expense of another creating a cooperation among policyholders for the common good of all members.
· Conventional Insurance involves making investments that can incur risk and generate profits that will be retained by the company, while under Takaful, Investment profits are distributed among both participants and shareholders on the basis of Mudaraba or Wakala models.
· Policyholders will not get back their contributions where there is no claim, while in a Takaful contract a some of the money will be refunded to the participants in case of no claims made.
· Surplus is distributed back to members as a renewal discount.
· Participants ‘accounts and shareholders’ accounts are kept separate.
· If there is a deficit in any Participants’ Fund, Shareholder Fund provides an interest-free loan (Qard Hasan) to the Participant/s.
Takaful Emarat adheres to UAE law and the directions of an appointed Shariah Supervisory Board.