There are a number of significant differences between Takaful
and conventional insurance companies. Takaful
companies not only follow the principles of Shari’a, but also have distinctive features compared to conventional companies.
The following is a comparison between Takaful
and conventional insurance companies:
|Takaful is based on mutual cooperation.
||Conventional insurance is based solely on commercial factors.
|Takaful is free from interest (Riba), gambling, (Maysir), and uncertainty (Gharar).
||Conventional insurance includes elements of interest, gambling, and uncertainty.
|All or part of the contribution paid by the Participant is a donation to the Takaful Fund, which helps other Participants by providing protection against potential risks.
||The premium is paid to conventional insurance companies and is owned by them in exchange for bearing all expected risks.
|Takaful companies are subject to the governing law as well as a Shari’a Supervisory Board.
||Conventional companies are only subject to the governing laws.
|There is a full segregation between the Participants Takaful Fund account and the shareholders' accounts.
||Premium paid by the Policyholder is considered as income to the company, belonging to the shareholders.
|Any surplus in the Takaful Fund is shared among Participants only, and the investment profits are distributed among Participants and shareholders on the basis of Mudaraba or Wakala models.
||All surpluses and profits belong to the shareholders only.
|In case of the deficit of a Participants’ Takaful Fund, the Takaful operator (Wakeel) provides free interest loan (Qard Hasan) to the Participants.
||In case of deficit, the conventional insurance company covers the risks.
|The Plan Owners’ and shareholders’ capital is invested in investment funds that are Shari’a compliant.
||The capital of the premium is invested in funds and investment channels that are not necessarily Shari’a compliant.
|Takaful companies have re-insurance with Re-Takaful companies or with conventional re-insurance companies that adhere to certain conditions of Shari’a.
||Conventional insurance companies do not necessarily have re-insurance with re-insurance companies that abide by Shari’a principles.