Islamic insurance (also called Halal insurance) provides its members with the same level of protection offered by conventional insurance, but it operates in a different way – using the Islamic principle of Takaful.
Takaful is described as the Halal alternative for conventional insurance which is fully compliant with Shariah. It abides by all the rules and regulations of Islamic law.
Takaful has roots that trace back centuries when it was practiced in various forms. Implementing this concept allow the risks to be covered by Halal methods rather than through conventional insurance.
Takaful offers the same level of protection as any other conventional insurance. In addition, it is considered to be Halal since “Haram” (forbidden) elements are strictly avoided. By removing all of the elements that are considered “Haram” it offers Muslims the same levels of insurance cover but in a way that does not compromise their beliefs.
These elements include:
Uncertainty and Gambling: In conventional insurance the policyholder loses all of their money (premium) if the covered risk does not occur during the stipulated period. This gives rise to uncertainty, which is Haram. And in cases where the insured against event occurs, the policyholder may receives a large amount of money against a small sum, which describes yet another Haram activity, "maysir" or gambling
Interest: Takaful is completely in accord with Islamic financial principles, hence no 'Riba' (interest) is earned or paid to the policyholder, which would again be Haram.
The benefits of Takaful:
It allows Muslims to cover the risks involved with life in a manner that is Halal
It is structured along ethical, fair and transparent lines and so, besides Muslims, it also has the potential to attract and appeal to other communities
The products and services that can be offered under Takaful are:
Halal Car insurance
Halal Contents insurance
Halal Buildings insurance
Halal Life insurance
Halal Business insurance
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How does Takaful work?
The principle of Takaful has been used since the early days of Islam. The word comes from Arabic and literally means ‘guaranteeing each other.’
Unlike conventional insurance where an insurance company takes on all of the risk for all of the reward all Participants (policyholders) agree to guarantee each other and, instead of paying premiums, they make contributions (Tabaru’a). The pool of collected contributions creates the Takaful Fund.
The amount of your contribution is based on the type of cover you want, and on your personal circumstances. As in conventional insurance, the policy (Takaful Contract) explains what cover and protection is provided and how to make a claim.
A Wakala Fee is payable by all Participants. The Wakala Fee is the proportion of the total you pay which goes to pay the administration and operating costs of providing Salaam Halal insurance. The proportion of the total you pay as a Wakala Fee has been agreed by a group of internationally learned Shariah scholars. Your Wakala Fee is not subject to Insurance Premium Tax. back to top
A share in the Fund
Each year, an independent firm of professional actuaries will carry out a valuation of the Takaful Fund. This valuation will assess the Takaful Contributions paid into the Takaful Fund, the amount of valid claims paid, the likely cost of any future claims, plus any other future commitments and liabilities, to determine if the Takaful Fund is under or over-funded.
Where the Takaful Fund is over-funded, you as a Participant will receive a Participation Discount. The amount of the Participation Discount is expected to vary from year to year and in some years there may be no discount.
The Participation Discount is released to the Takaful Participants on the anniversary of their cover as a reduction against next year’s Takaful Contribution, and shared equally in proportion to their individual Takaful Contributions paid in the prior year.
If you cancel or do not renew your Takaful Contract you will not be eligible for any Takaful distribution in the following year.
If the Takaful Fund is assessed to be under-funded, Principle Insurance Company Limited, not you, will arrange the Advance of funds to cover any deficit. There will be an entitlement to recover any such deficit, before any Participation Discount is given to the Takaful Participants.
All Takaful Participants are protected in exactly the same way as conventional insurance purchasers. Principle Insurance Company Limited is a member of the Financial Services Compensation Scheme.