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What is Takaful?

Takaful comes from the Arabic root-word ‘kafala’, which means guarantee.   Takaful is not only a tool to mitigate loss, give financial protection, and give halal profits. It is an ideology which promotes:

  • Solidarity and joint guarantee
  • Self reliance and self sustainability for community well being
  • Assistance to those that need it
  • Community pooling system

How does the Takaful system work?

The Takaful system is based on the principles of fairness, and is committed to serving one another sincerely and truly so that all parties benefit. What is unique about this concept is that the underwriting profit is shared among all participants who have a positive contribution during the year.

How do I pay for a Takaful Scheme?

To initiate a Takaful scheme, you have to pay by cross check. Installments for your scheme may be made monthly, quarterly, semi-annually, annually or in one lump sum in order to match your financial resources after making necessary adjustments.

What are the common terminologies used in the Takaful? 

Terminology changes:
Life Insurance/ Life Assurance Family Takaful
Policy Certificate / Scheme
Premium Contribution
Life Assured / Insured Person Covered
Assured Participant
Policyholder Certificate Owner
Sum Assured Sum Covered
Insurance Charge/Fee Contribution
Payor Contributor
Life Proposed Person Proposed
Premium-Redirection Contribution-Redirection
Policy Document Participant’s Membership Document (PMD)
First Premium Receipt First Contribution Receipt
Premium Notice Contribution Notice

What are the key elements of Takaful?

A Takaful system of risk protection consists of the following elements:

  • Sharia compliance in Takaful operations and investments
  • Financial and Risk sharing under the principle of Shariah
  • Contributions are in the form of Tabarru’, or donations for mutual assistance to the needy members of the group
  • Application of ethics and full disclosure

Who are the parties in a Takaful Contract?

A contract is made between two parties but a Takaful scheme involves:

  • The Takaful Operator: Providing the service to the community.
  • The participant: Who wishes to have cover against risk of suffering a financial loss resulting from fire, accidents, burglary, death, etc.?
  • Waqf: An endowment which is setup and collects all the contributions which come from the participants.

What is the future of Takaful?

It is envisaged that Takaful premiums could increase to around USD 7.4 billion in 15 years, a growth of around 20 per cent. Insurance penetration in Muslim countries is amongst the lowest in the world. This is due to the strong extended family system and the interpretation of religious doctrine that has been widely misunderstood in the context of the financial protection. Given there are almost one billion Muslims in the world, the potential market for Takaful in Muslim and  non-Muslim countries is yet to be tapped.