insurance and Islam

Insurance and Islam

Hi. As salam alaykum warahmotulah wabarakatuh.

Trust you had a great weekend. Mine wasn’t that bad as well. I haven’t been feeling like myself lately, but I’m sure it will pass.

Moving on to today’s topic, a few months ago, I wrote about insurance and I promised to write about the Islamic view on it. Well, here it is.

Though Islam doesn’t accept conventional insurance it does accept insurance called TAKAFUL .

I know, I know. You are starting to wonder what the heck is TAKAFUL. Well ,that’s why I’m here for you?

What is TAKAFUL?

Takaful is a type of Islamic insurance wherein members contribute money into a pool system to guarantee each other against loss or damage.


Takaful insurance companies were introduced as an alternative to those in the commercial insurance industry, which are believed to go against Islamic restrictions on riba (interest), al-maisir (gambling), and al-gharar (uncertainty) principles—all of which are outlawed in sharia.

All parties or policyholders in a takaful arrangement agree to guarantee each other and make contributions to a pool or mutual fund instead of paying premiums. The pool of collected contributions creates the takaful fund. Each participant’s contribution is based on the type of coverage they require and their personal circumstances. A takaful contract specifies the nature of the risk and the length of the coverage, similar to that of a conventional insurance policy.

Takaful-branded insurance is based on sharia or Islamic religious law, which explains how individuals are responsible to cooperate and protect one another. Takaful policies cover health, life, and general insurance needs.

The interesting thing about TAKAFUL is that participants / contributors get to have their money back if they incurred no loss at the end of their contract.

What do I mean by this ?

The takaful fund is managed and administered on behalf of the participants by a takaful operator, who charges an agreed fee to cover costs. Much like a conventional insurance company, costs include sales and marketing, underwriting, and claims management.

Any claims made by participants are paid out of the takaful fund and any remaining surpluses, after making provisions for the likely cost of future claims and other reserves, belong to the participants in the fund—not the takaful operator. Those funds may be distributed to the participants as cash dividends or distributions, or via a reduction in future contributions.

The TAKAFUL market

This market is growing rapidly considering the fact that 60% of the community are young Muslims. And it is said that the market was worth roughly $19 billion USD by the end of 2017, with the largest segment being the life and family market. Takaful was expected to grow to $40 billion by 2023, according to the report.

Read also; Self-development is key but we should try to honour our paces

The model of TAKAFUL

There are several models of how takaful can be implemented:

  • Mudharabah model (profit-sharing): Mudhārabah model is a profit-sharing contract where participants provide capital in the form of contribution and the Takāful operator acts as a mudarib who provides his management expertise to efficiently utilize the Takāful fund. Takāful operator shares the profit from the investment of Takāful fund and is responsible for all management expenses.
  • Ta‟awuni model : This model is based on the concept of brotherhood, solidarity, and mutual cooperation among participants to achieve the well-being of those who are in great need of help due to a sudden calamity, misfortune, or disaster. This model seeks to achieve the welfare of Takāful participants and the community at large. Takāful operator acts as a trustee on behalf of participants with no intention of making a profit. That‟s why this model is also called a non-profit model. The profit and underwriting surplus are distributed entirely to the participants.
  • Wakala model: Wakalāh model is a fee-driven Islamic contract in which one party provides capital whereas another party manages the funds. Here, the other party charges a fixed fee instead of profit-sharing as in the Mudhārabah contract for providing its managerial services to prudently invest and manage the funds.
  • Al Waqf-based model: Waqf is a distinct entity and a legal person. According to some “except for names and terms, the essence” of both Al Waqf takaful and conventional insurance is the same, and as a consequence, this structure “has come under a lot of criticism from Shari’ah scholars”.Mainly used in Pakistan and South Africa.

Takaful is a bit broad but I have tried my best to make it short and simpler for you guys to understand.

You should note that insurance is a contract i.e you can file for a claim (if it happens within the contract period) anytime it does and as for the profit-sharing that will be stated in the contract when it would be distributed. This is why it is important to get a broker when buying an insurance policy for better understanding.

That was fun. I hope you understand fully now the Islamic view on insurance.

Have a lovely week ahead. Love y’all ❤️



Leave a Reply