The Main Features of Takaful

As an alternative to conventional insurance, takaful has several features which make it

distinct. The three main features are cooperative risk-sharing, clear fi nancial segregation,

and Shari‘ah-compliance in underwriting policies and investment strategies.

Cooperative risk-sharing

As a well-articulated and exclusionary move to eliminate riba and gharar elements in

takaful, cooperative risk-sharing through the means of donation was designed. This

dramatic turn in the modern history of insurance is Shari‘ah-compliant as it encourages

mutual assistance. Takaful is based on more than one contractual relationship, although

the basis of it is mutual assistance. Other contractual relationships will be discussed in

this chapter while considering the models of takaful. Social responsibility, solidarity, and

the innate need to care for others are among the characteristics of such a cooperative

move, and therefore, instead of premiums, the concept of donations is adopted and

merged with other frameworks of Islamic commercial transactions. Although the

policyholders pay some sort of premium, they are considered as donations to the

common cause to assist those members who su_ er any loss.

(image taken form AIMS College course of islamic finance course)

Qur’an 5:2: “And help one another in righteousness and piety, but do

not help one another in sin and rancour.”

Clear fi nancial segregationmnsurance (Takaful )

behalf of the participants. Islamic law restricts the role of the insurance company to

that of an ordinary trustee who is responsible to the participants. In conventional

insurance business, the insurance company is a profi t-making entity that agrees to bear

the fi nancial burden and losses of its policyholders. The shareholders own the insurance

company and are entitled to receive any profi t and bear the burden of any defi cit recorded

at the end of the fi nancial year. Conversely, in Islamic law, the role of the operator of the

cooperative insurance business is clearly defi ned and segregated from the role of the

participants. The takaful model determines the exact roles of the participants on the one

hand and the operator on the other. These will be explained later in this chapter when

we discuss the models of takaful.

Second part is also writen by my teacher of mba islamic finance now iam sharing it for my students..

Blogging Fusion Blog Directory