Insurance is an important financial instrument that helps businesses and individuals manage risks by transferring them to insurers. An insurance policy can cover various risks, including health-related expenses, property damage, and liability.
Recently, Takaful has become more popular, serving as an alternative to a traditional insurance policy. This insurance is often based on the Sharia principles, promoting risk-sharing and prohibiting interest-based transactions among participants.
What Takaful Is?
This is Islamic insurance, where certificate holders contribute cash into a common pool system to guarantee one another against damage or loss. Because it is based on Islamic religious law or Sharia, it is responsible to protect and cooperate. It covers general insurance, life, and health needs.
Ideally, Takaful insurers were introduced as the alternative to companies in the commercial industry, believed to go against gambling (al-maisir), uncertainty (al-gharar) principles, and Islamic restrictions on interest (riba), which Sharia outlaws.
How It Works?
Unlike a conventional insurance policy, Takaful participants in the contract are the insured and insurers. Every member in the group often agrees to make a regular premium or contribution.
The cash is put into an individual's account and invested in the Sharia-complain investment. To be part of a Takaful contract, you must donate part of the money from your account when another member loses. Other members will do the same when you get losses.
Practically, Takaful looks the same as conventional insurance. For instance, you can cover your home using the property Takaful. Your Takaful contract can also cover extra living expenses following an accident.
It might seem that Takaful is similar to conventional insurance like homeowners coverage or car insurance. However, Takaful is Sharia-compliant, whereas other conventional insurance policy isn't.
How Different is Takaful From Other Insurance Policies?
Insurance is a contract between the insurer and the insured. This contract is called a policy, and to get insured, you must pay a fee (premium) to your insurer.
The insurer uses those premiums to invest. Usually, you don't have any say where those investments should be made and may include a non-sharia-compliant business, including one with elements of uncertainties/high risk and interest.
However, Takaful differs from conventional insurance in terms of principles and how it works. Not to mention, Takaful is open to non-Muslims looking to get the benefits and subscribe to it.
The Key Benefits
In Takaful systems, shared responsibilities create a sense of accountability for every participant. This reduces moral hazards and risks of fraudulent claims since everyone has a stake in preserving the community's financial stability.
In addition, Takaful plans include elements of investment or savings, enabling every participant to generate wealth with time. This is attractive to people looking for financial growth and insurance protection in the long term. Other benefits of Takaful plans include the following:
- Improved social welfare
- Customizable coverage
Choosing a Takaful policy is more than a box-ticking practice. The choice you make will make a great difference when it comes to your financial outlook and performance, especially when making claims. The best part is that, with Takaful, you may even get part of your premium if you have a fortunate year.
