Insurance as a financial arrangement to provide cover against the unforeseen eventualities of life is prevalent in all societies across the world. Arguably, there is need for financial protection in situations like death, accidents, losses, etc. It is a financial arrangement you enter to guard against the uncertainties of life. To fulfill the need, a large number of huge financial institutions have come all over the world. These institutions cover you against untimely death, accidents, diseases and losses. There is no doubt these companies are doing a nice job of providing you much-needed protection against the eventualities of life. However convenient it might be, buying the conventional insurance poses religious problems for Muslims for not being Shariah-compliant. Islam requires the belief in Qadr (God's measures) and provides adequate guidance in dealing with their aftermath. The Islamic scholars have long been dismissive of the insurance.

The opposition of the Islamic scholars to insurance on three counts which are strictly prohibited for Muslims: Al-Gharar (uncertainty), Al-Maisir (gambling) and Riba ( usury). Nevertheless the Islamic society needed some financial model similar to insurance which would be compliant with the principles of Shariah. The growth of Islamic banking made it easier to evolve a system of insurance for for the Muslims which provided the much needed coverage while being totally grounded on the principles of Shariah. Takaful as the Islamic Insurance is known operates on the principles of shared responsibility and mutual interest. It is a contract where the members of a group pool their money in accordance with pre-agreed terms of profit sharing and assisting each other and jointly compensating the member who suffers a loss or damage.

Takaful is based on Islamic principles of Mudarabah (Trustee profit sharing) and Tabarru (Charity or donation).The members share the losses collectively. The system is totally free of Riba, Al-Gharar and Al-Maisir. It is a system where the insured are insurers simultaneously as everybody forgoes agreed percentage of their profit to indemnify someone in need of assistance. Although the system might have evolved in recent times but it is grounded in the historical framework of Islamic commerce. Such a system was prevalent at the time Holy Prophet known as Aaqilah, a system of mutual help, protected the members of the tribe in conflict with other tribes.

Like conventional insurance, Takaful covers the policy holders against the human tragedies. In this system, the policy holders pay (Takaful partners) premiums to compensate each other. The profits earned by conducting business with the pooled money is shared between the Takaful partners. The precept of Tabarru applies to giving premiums which are calculated by using actuarial methods. The investment of funds is regulated by the principle of Mudarabah avoiding all interest-based financing tools. Takaful is a wonderful alternative to conventional insurance serving similar needs and is gaining more and more popularity.

Summary: Takaful or Islamic insurance is an alternative to the conventional insurance which while giving the adequate protection against the uncertainties of life is also Shariah-compliant.

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