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| Takaful/Islamic Insurance |
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Exposure to risk of catastrophes and disasters involving accidents, loss of vital body parts, destruction of property/business/wealth and even death is an unavoidable reality of our life. Islam does enjoin belief in qadr (God's measures), but also provides guidance for minimizing such risk as much as possible. In the conventional framework buying an insurance policy to cover specific risk addresses such problems.
For a long time, the traditional Islamic scholars have rejected the conventional insurance in general. However, their viewpoints were particularly influenced by the presence of riba ( Takaful means shared responsibility/guarantee. It is an agreement or contract among a group based on funds contributed by the group members who agree to assist each other and jointly indemnify the loss or damage that any of them might be exposed to out of that pooled fund. Such agreement/contract employs the notions of mudarabah (trustee profit sharing), tabarru' (charity/donation for others benefits) and mutual sharing of losses within a framework free of riba, maysir and gharar. The concept of Takaful is rooted in Islamic commercial law, where the pool members are the insurers as well as the insured at the same time. The framework of joint responsibility was practiced in the system of Aaqilah, an arrangement of mutual help or indemnification that was prevalent at the time of the Holy Prophet (p) to protect members of a tribe involved in conflicts with other tribes.rn Takaful provides a form of indemnification in case of any tragedy in human life and loss to the business or property. Similar to insurance, the policyholders (recognized as Takaful partners) pay premium to indemnify each other. However, unlike most insurance, Takaful is akin to mutual insurance, where the profits earned from business conducted by the company with the subscribed funds is shared by the Takaful partners. Usually, Tabarru' concept governs the contribution/premium part. Determination of such premium is based on modern tools, such as mortality tables and other actuarial requirements and standards. The investment or management of the funds is governed by Islamic financing instruments, particularly mudarabah. An important distinction of Takaful is that in regard to investment of funds, based on the presumed riba-interest equivalence, it avoids any interest-based instruments. Thus, Takaful companies can engage or employ only Shariah-compliant instruments and models and the profits are distributed according to a pre-agreed ratio specified in the Takaful agreement. Likewise they share in any surplus or loss from the pool collectively, minimizing the chance of any over-pricing so common to insurance companies.rn Takaful Ta'awani or simply Takaful generally covers alternatives to conventional life insurances. Other products are also available to address education/health or business-related risks. Takaful companies can be modeled as wakalah (agency), mudarabah (silent partnership or trustee profit sharing), or some combination of both. To determine and ensure compliance with the Shariah, it is standard that all such Takaful companies must be subject to their respective Shariah supervisory board, consisting of at least some competent Shariah experts. Islam is not against insurance. However, Islamic scholars earlier have shunned insurance due to presence of some aspects that render insurance contracts Islamically unlawful. Takaful fills that void as an Islamic alternative to insurance. Takaful is experiencing growing popularity among Muslims who want to sensibly protect themselves against catastrophic risks, and do so within an Islamic framework. |
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