Takaful is commonly referred to as Islamic insurance; The word Takaful originates from the Arabic word Kafalah, which means “guaranteeing each other”.  The policyholders contribute collectively and mutually assist in order to share the harm or loss that may fall upon the group.The concept is in line with the principles of compensation, mutuality and co-operation, encompassing the elements of shared responsibility, joint indemnity, common interest and solidarity.All Takaful companies are fully Sharia’a Compliant and Takaful products and operations are supervised by a Sharia’a Board.

Takaful is not only for Muslims. It is based on a cooperative concept that is beneficial to all members of the society without any discrimination on the basis of ethnicity, creed or colour.

Issue	Conventional Insurance	Takaful Insurance
Insurance Contract	Risk transfer mechanism: risk is transferred to specialized party (insurance Co.)	Risk Share mechanism  /Mutuality and participant responsibility
Economic Objective	Profit maximization for the benefits of shareholders	Mutual Interest / Joint guarantee
Insurance company role	Insurer	Operator
Laws	Secular Regulations	Sharia regulation
Ethical Framework	Codes of conducts for business benefits /maximize the long term value of shareholders	Islamic business ethics /social responsibility
Contract Forms	Commercial Insurance Contract	Cooperative plus islamic contracts of Wakala /Mudaraba/Kafala
Underwriting Policy	Insurance ability /Profit making /underwriting techniques	Sharia framework (Haram Businesses restricted) / insurability / underwriting techniques
Investments	Equity /debt – no restrictions	Sharia Compliant Investments
Surplus	Shareholders account	Participants account or sharing system

Conventional insurance contains elements contradictory to the Islamic Sharia. These elements are Uncertainty (Gharar), Gambling (Maysir) & Interests (Riba).

The insurance contract contains uncertainty due to:

• Uncertainty whether payment will be accepted as promised.
• The amount to be paid is not known
• The time it will occur is not known

Any form of contract which is lopsided in favor of one party at the expense and unjust loss to the other is classified as Gharar.

• The participant contributes a small amount of premium in hope to gain a large sum
• The participant loses the money paid for the premium when the insured event does not occur
• The company will be in deficit if claims are higher than contributions

• An element of interest exists in conventional insurance products – as the insured is entitled to get much more than he has paid in an event of a claim
• Insurance funds invested in financial instruments such as bonds and stocks contain an element of Riba.

Mudaraba is a Takaful model based on profit-sharing between the policyholders and Takaful Operator in accordance with a pre agreed ratio.

Wakala is a contract that appoints someone to be the Participant’s Wakeel (Agent) for a certain fee.

It is the fee charged by the Takaful Operator from the participant to manage the Participant Takaful Fund.

There is no price difference. Takaful products cannot be compared to conventional insurance products, given the additional values offered.

Surplus refers to the excess of contributions over claims, plus investments return. Surplus sharing refers to the act of distributing the excess made among the participants of the Fund.

The relationship among the members of the Fund is that of co-operation for Mutual Benefit. The individual members contribute to an organized and well managed fund whose core objective will be for the welfare of the entire group. Thus the relationship is one of strength & togetherness.

The participants have the opportunity to obtain two forms of benefits. First the monetary benefits through the Takaful plan itself. Secondly the “benefits” in the spiritual sense, through the act of Tabarru’ (donation).