Why Takaful: ITS APPLICATION AND BENEFITS

The Academic Council of the Muslim World League in 1985, after making appropriate modification concluded that the co-operative form of insurance is acceptable and considered an alternative to insurance. The system within the confines of Islamic framework should be founded on the following:

1. Takaful

Muslim jurists unanimously agreed that cover which fits the requirements of shariah may be based on the Islamic concept of Takaful. Takaful is a noun stemming from the Arabic verb “kafala” meaning to take care of one’s needs. Takaful means mutual help among the group i.e. each member of the group pools efforts to support the needy within the group.

The Takaful concept is based on solidarity, shared responsibility and brotherhood among members. Takaful can be defined as the act of a group of people who desires to reciprocal guarantee each other within the group against certain loss or damage that might be inflicted upon any one of them.

The salient features of Takaful operations are as follows:

·        The operator is not the one assuming the risk, the Participants who are mutually covering each other.

·        The Takaful Operator is acting as trustee on behalf of the Participants to manage the operation of the Takaful business.

·        All contributions (premiums) paid by the Participants will be accumulated in the Takaful fund for payment of the Takaful benefits.

·        The Takaful fund at the same time can be invested in areas approved by shariah Committee.

Takaful offers both the monetary profits through this protection scheme and the “profit” in the spiritual sense. Some of the benefits are as follow:

1.      It allows the participant to fulfill his social obligation towards community and family.

2.      Takaful also enables financial assistance for the unfortunate and needy through the concept of tabarru‟ where a portion of the contribution will be apportioned to the risk fund. “tabarru” donations also allow participants to achieve self-purification and peace of mind.

3.      Promotes moral values and ethical dealings in all its business activities and operations as it is free from prohibited elements such as riba, gharar and maysir and other similar prohibited elements within financial dealings.

4.      It provides protection and security for the family and the group against any misfortune.

There are some pointers that we as Muslim must know and do not overlooked is the practicality of Takaful as a fundamental monetary assistance to the ummah nonetheless it facilitate our muammalat habits spiritually. In tandem with the shariah discipline on Takaful (which means shared responsibility and shared guarantee), the participants mutually agree to provide compensation in the event of a misfortune.

Meaning:

The place of relationships and feelings of people with faith, between each other, is just like the body; when one of its parts is afflicted with pain, then the rest of the body will be affected.

(Reported by Bukhari and Muslim)

Takaful, is based on the concept of ta’awun meaning mutual assistance. Participants of the Takaful scheme mutually agree to assist each other financially in case of certain defined needs (as defined in the Takaful contract) by contributing to a common fund.

This concept is based on Allah (SWT) command in the following verse: Meaning: "... Cooperate ye one another in righteousness and piety but help ye not one another in sin and rancor" (al-Maidah: 2)

Therefore, it is crucial for Muslims to identify and acknowledge the importance to subscribe to Takaful rather than conventional insurance policy

No	Pertinent Issues	Takaful	Insurance
1	Essence of Intention	Intention is to create both spiritual and legal relationship	Intention is to create legal relation only
2	Subject Matter	Subject matter must be Shariah justified	Subject matter must be Common Law justified.
3	Guarantee	The Takaful Operator is only the Fund Manager. The Participant mutually guarantees each other	The company provides the guarantee
4	Fund	The fund belongs to the Participant and managed by the Takaful Operator for a legitimate consideration for the services rendered	The fund belongs to the Company though separation of assets and is maintained between the Shareholders and the policy holders
5	Payment of contribution/ premium	Contribution is treated as donation (tabarru)	Paid premium creates an obligation against the insurer on a sale and purchase contract
6	Forbidden Elements	Islamic model is based on Islamic principles and free from any of the forbidden elements	Insurance policy revolves around the element of Gharar, Riba and Maisir
7	Profits	The profit is shared between the Participant and the Operator	In insurance the profit is at the discretion of the Company
8	Contract	A combination of tabarru‟ contract (donation) and agency or profit sharing contract	An exchange contract (sale and purchase) between insurer and insured
9	Risks Treatment	Risks sharing concept among Participants	Concept of risks transfer from insure to insurance company
10	Benefits	Paid from the defined funds under joint indemnity borne by the participants	Paid from the fund legally owned by the company
11	Profits /Bonus	Specifies from the outset how the profits are to be shared between the participants and the operator	May offer bonus or profit in general terms only especially with profit participating policies
12	Investment of Fund	Assets of the Takaful funds are invested in Shariah-compliant instruments	There is no restriction apart from those imposed for prudential reasons

Cited from IBFIM Takaful Fundamentals

WaAllahualam