A Guide to Takaful Insurance

A Guide to Takaful Insurance

Have you been wondering about the differences between traditional insurance and Takaful? Although both protect the insured, there are major differences between the two.

What is Takaful?

Takaful is a Shariah-compliant insurance option, grounded in Islamic Muamalat (Islamic transactions) products, which explains how individuals are responsible to cooperate, support and protect one another. The basic foundation of Takaful is built on members contributing funds into a collective pool, known as Tabarru’, which protect the group against loss or damage.

Takaful coverage is available for anyone, and one does not have to be Muslim to become a Takaful agent or to take on Takaful coverage. Like traditional insurance models, Takaful provides similar Shariah Compliant Products, like medical Takaful, life Takaful, motor Takaful, and more.

Understanding Takaful Insurance

Unlike traditional insurance policies, which require individuals to pay a premium and claim from Insurer each Takaful participant’s contribute to create a Takaful fund and contribution is based on their personal circumstances and the type of coverage they require (such as age and pre existing health conditions). Similar to conventional policies, a Takaful contract defines the length of coverage, and nature of the risk coverage (i.e. the type of risk coverage).

The Takaful fund is operated by a Takaful manager, who is paid an agreed-upon fee to manage and administer the funds on behalf of the Takaful participants. Like a traditional insurance company, Takaful contribution fees include sales and marketing, claims management, and underwriting. All claims made by members are paid out of the fund, and any remaining funds belong to the participants – not the administrator. These surplus funds may be distributed to the participants as cash distributions or dividends, or through a reduction in future contributions.

Features of Takaful policies include the following –

  • No claim cash back policy – if participants do not file any claims within their coverage period, they will receive a certain amount of cash back from their Takaful provider for selected Takaful products. However, this amount is subject to the discretion of the Takaful provider.
  • Shariah-compliant – it must adhere to all Islamic laws and not involve anything Haram.
  • Surplus fundsall claims will be paid out of the collective fund, and any remaining funds  be distributed to the participants as cash distributions or dividends.

Global Takaful Market

According to a report by Research and Markets, the global Takaful market is growing at a fast pace. At the end of 2017 the global Takaful market reached AED 69.75 billion (USD 19 billion), and by 2023 these figures are expected to exceed AED 149 billion (USD 40 billion).

Takaful Conventional Insurance
Based on mutual cooperation.Based on commercial factors driving the insurance industry.
Must operate according to Shariah laws and government laws.Must operate according to government laws only.
Takaful shareholders and policy holder’s funds can only be invested in Shariah compliant investment funds.Capital and premium for conventional insurance is invested in funds and investment channels that may or may not be Shariah compliant.
Risks are shared and distributed among Takaful  participants who agree to share joint risks.Risks are transferred passed on from individual to conventional insurance provider.
Takaful is based on tabarru, where a portion of the contributions made by participants is treated as a donation.Conventional insurance is based on the concept and practice of charging interest.

Conventional or Takaful – Which is Best for You?

At Petra Insurance Brokers, we can help you decide whether conventional or Takaful coverage best suits your needs. We will leverage our decades of industry experience and expertise to find the best coverage to protect your family and legacy. Regardless of your age, medical history, or career, our team of advisors are ready to provide you with a quote for new coverage or help you review your existing coverage.

Contact a member of our team today to find out how we can help you protect the life you’ve worked so hard to build. You can also reach us on Facebook, Instagram, Twitter, and LinkedIn.

We look forward to hearing from you.

A Guide to Takaful Insurance


Managing Partner

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