Difference between

Takaful and
Conventional Insurance

Presented to: Sir Mosab.

Presented By: Mussarat fatima

5/28/2010
 DIFFERENCE BETWEEN TAKAFUL AND CONVENTIONAL

INSURANCE

Before discussing the difference between takaful and Conventional insurance it is better to first
understand the concept of insurance and takaful.

WHAT IS INSURANCE

Insurance provides the means for people to transfer the burden of uncertainty (of financial loss) to the
insurer, for an agreed financial consideration called the “premium”. In exchange, the insurer promises
to provide financial compensation to the insured should a specified loss occur.

WHAT IS TAKAFUL

The central idea of Takaful (Islamic insurance) contract is that it is a financial transaction of a mutual co-
operation between two parties to protect one of them from unexpected future material risk. In a Takaful
transaction, the party called the participant (insured) pays a particular amount of money known as the
contribution (premium) to the another known as Takaful operator (insurer) with a mutual agreement that
the insurer is under a legal responsibility to provide the participant with a financial protection against
unexpected loss, should it happens within the agreed period.

Table of Comparison between Takaful and Insurance

TAKAFUL INSURANCE

The account is known as al-Tabarru’, which meansThe account is known as general insurance account
donation, the other one is treated in line with the principle and life insurance account of fund
of al-Mudharabah
 Specificies are given that how the profits from TakafulNo exact specification with regard to the profit-
investments are to be shared between the operator andsharing in contract.
the participants.Ratio of sharing the profit are already
B May offer bonus or profit in general terms only
agreed.
o especially with profit policies,
nBased on principles of al-Mudharabah, the ratio could
It may also decide to give or not to give bonus for
ube 5:5 or 6:4 or 7:3 as agreed between the participant
any particular year depending on the result of the
sand the operator.
investment returns. The rate of bonus can vary from
year to year up to the discretion of the Board of
Directors of the company.

Participants own the Takaful funds and managed by theInsurance is a buy-sale contract. In which policies
operator. Participants give up individual rights to gainare sold and the policy holders are the purchasers.
collective rights over contribution and benefits.
o
n
t
r
a
c
t

Company is better known as operator, which acts asRelationship between the company and the policy-
trustee, manager and also entrepreneur. holders is on one to one basis.

o
m
p
a
n
y

The minimum age for a person to hold a TakafulThe minimum age for a person to buy a poliy is 16
Ccertificate is 15 years and infant below 15 should alsoyears, but an infant between the age of 10 and 16
ahave the right to be insured under the supervision ofmay also have the right to have it under respective
prespective guardian guardian
a
c
i
t
y
 Element of Rabia is not in Takaful practices and alsoInsurance practices involve Riba (interest) and some
not include other unIslamic elements, but is evolvedother elements, which may not be justified by the
around the elements of al-Mudharabah, al-Tabarru’ andShari’ah principles
E
other Syari’ah justified elements
l
e
m
e
n
t
s

A fetus may also have the right to be insured on theSo far there is no provision providing an insurance
name of the respective mother for one’s health protection coverage for the fetus

e
t
u
s

The paid-premiums of the participant can for no reasonThe paid-premiums of the policy-holders may
be forfeited, even for a breach of utmost good faith orsometimes be forfeited, especially for the breach of
any other offence or wrong committed by the participant utmost good faith

o
r
f
e
i
t
u
r
e
 The funds shall be invested in any interest free fromThe funds may also be invested in an interest-
I Shari’ah justified scheme based scheme
n
The entire procedure shall comply the guidelines of theThey can also be invested in any scheme or project,
v
Shari’ah whish may not be supported by the Shari’ah
e
discipline
sInvestment returns must not be driven by any unethical
t commercial activities
m
e
n
t
s

The entire operation aims at paving the way ofThe operation aims a commercial gain on the basis
brotherhood, solidarity and mutual cooperation of the principles of business

a
t
u
r
e

Regulations affecting Takaful are based on the DivineInsurance law is based on the human thoughts and
sanction (Qur’an and Hadith) cultures

e
g
u
l
a
t
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o
n
s
 The nominee in a life Takaful policy should not beThe nominee in a life policy is treated as an absolute
treated as an absolute beneficiary, but a mere trustee orbeneficiary over the policy
an executor who is under a responsibility to receive the
No other person shall have the right to claim all or
benefits over the policy and distribute them among the
part of the benefits disbursed to that nominee
right beneficiaries according to the principles of Faraid

o
m
i
n
a
t
i
o
n

Fixed minimum premium, which is the same for allPremiums paid by the policy-holder are various. It
participants of all ages depends on the age when the policy-holder first
takes out his policy. The older the policy-holder is, the
higher the level of premium would be

r
e
m
i
u
m
s

Under Takaful policy, the cause of death of theUnder a life insurance policy, if it is proven that the
participant is immaterial policy-holder has committed suicide within first two
(2) years of the policy with an intention of leaving
The beneficiary shall have the right to claim legitimate
benefits to his beneficiaries, no right of claim shall
benefits from the operator regardless of whether the
u be entertained
death of the participant is caused by natural, suicide or
i
being killed while committing a crime
c
i
d
e

References:
Ahmad Ali Khan, 2009.Takaful and Conventional Insurance [online] (updated 18, march, 2010) Available
at: http://www.scribd.com/doc/28581847/Takaful-and-Conventional-Insurance [Accessed 2010-05-28]

Jamil Akhtar Khan, C.M., 2007. Development of Insurance Sector Through the Introduction of Takaful,
Business And Finance Review, pp.3-4.

Al-Zuhayli, D.W., 2003. Financial Transaction in Islamic Jurisprudence, Volume 2., Dar al-
Fikr al-Mouaser.