Takaful refers to a cooperative form of insurance governed by Shariah law. Takaful members contribute to a pool of funds that members can use to receive financial support in a covered loss. The Takaful system is built on cooperation, responsibility, assurance, protection, and assistance among groups of participants. Put another way. It involves providing shared contributions to those in need.
Types Of Takaful
The parties to a conventional insurance contract are the policyholder and the insurance company. In return for insurance coverage, the policyholder pays the insurance company. Takaful, however, involves both the insurer and the insured as contract participants. Several types of contracts are used to manage the takaful contracts and coverage.
- Wakalah (agency)
- Mudharabah (profit-sharing)
- Hybrid Model
The takaful operator, or Islamic insurance company, becomes a third-party agent and handles the takaful contract. It is the agent who manages participants’ funds. Participants pay a fee for the agent’s services.
Unlike Wakalah contracts, Mudharabah contracts allow takaful participants to share profits with the contract company. The takaful participants provide capital through the premiums they pay. The contract manager invests the participants’ money into Sharia-compliant investments using his expertise and skills. Profits are shared between participants and the manager according to an agreement. A shared gain compensates the manager for their time and experience rather than paying a flat fee, and a manager does not receive compensation if the investments do not profit.
Hybrid Takaful, also known as mixed Takaful, combines elements of both Wakalah and Mudharabah. The takaful manager in this model receives a set Wakalah fee and a portion of the investment profits.
What Are The Advantages Of Takaful Insurances
Savings, investments, and income largely determine economic growth. Here’s how Takaful has impacted all three:
- As Takaful products include a savings and investment component, they have become more complex and helpful in providing early preparation (in case of an emergency) to policyholders.
- In Malaysia, because Takaful is Shariah Compliant, it is a popular instrument for saving compared to conventional insurance. Furthermore, non-Muslims can also get involved, which further strengthens its appeal.
- Takaful’s can pool their funds effectively. By encouraging investment, the country’s Gross Domestic Product (GDP) increases, thereby boosting the nation’s income.
You Earn Profits Instead Of Bonuses
All participants and shareholders share profits from investments. It is unlike conventional insurance. Any extra profit or money derived from this coverage goes to the shareholders of the insurance companies.
The traditional insurance industry aims to increase profit by collecting premiums and gaining interest on under-owned accounts. On the other hand, Takaful is aimed at achieving cooperation among participants.
A certain amount of cashback is offered for certain Takaful products if no claims are made during coverage.
The fundamental concept of Takaful is cooperation. A pooled fund provides financial assistance. People under Takaful collectively contribute to this. God will bless the participants both in this life and the next. Regardless of participants’ religious beliefs, the Takaful system benefits everyone regardless of color or creed.