TAKAFUL INSURANCE ISLAMIC INSURANCE HALAL INSURER SHARIA COMPLIANT INSURANCE POLICY
Takaful insurance or Islamic insurance is by definition a halal agreement by which a Sharia compliant insurance company commits to provide a guarantee of financial compensation against the payment of a premium to cover a specific loss, damage, illness, or death.
Takaful Insurance explains through takaful-insurance.com the principles of halal insurance in the context of Islamic finance and which is emerging in Muslim countries as an alternative to traditional insurance from the point of view of protection and foresight.
DEFINITION OF ISLAMIC INSURANCE
Islamic or Halal insurance (also called Takaful) is defined as a financial cover contract against the risks incurred by a person or a company within the framework of Islamic finance and on the basis of compliance with the rules of Islamic Sharia.
Islamic insurance is a financial instrument which consists of a fund for the protection of the policyholders and therefore insured in a mutual assistance mechanism (Kafalah means a person joins another in undertaking a certain obligation) between the insured persons who form a mutual protecting scheme among themselves.
Takaful is an insurance design combining cooperation, protection and reciprocal assistance between groups that would participate in an investment and is primarily a form of mutual insurance that conforms to Sharia law.
WHAT IS THE DIFFERENCE BETWEEN ISLAMIC INSURANCE AND CONVENTIONAL INSURANCE?
The difference between Islamic insurance and conventional insurance is defined by reflecting the differences between conventional and halal finance.
What differs from Islamic insurance from other finances is the principle of ethics and morality applied in this insurance, which considers first and foremost the policyholders not as clients but as full partners with whom the insurance will share the benefits, profits and losses.
The fundamental differences between the two types of insurance are important to note and which essentially describe Islamic insurance:
- No speculation is allowed therefore investments are not made on derivative options but on tangible values.
- No interest, so no Riba.
- Prohibition to finance or insure sectors not approved by Sharia (alcohol and pork industries, gambling etc…).
PRINCIPLES OF ISLAMIC INSURANCE
In theory, the Takaful is perceived as a cooperative insurance, where its members pay a sum in a common fund. The purpose of this system is not the benefit but the guarantee of the principle of assisting each other and thereby generating mutual protection (mutuality). What distinguishes Islamic insurance from 'conventional' insurance is mainly the exclusion of three elements that do not conform to the principles of Sharia:
- Al-Gharar (uncertainty).
- Al-Maisir (speculation, gambling).
- Riba (interests).
WHY IS GHARAR FORBIDDEN IN ISLAMIC INSURANCE?
Sharia complaint insurers ban Gharar as it occurs when the object of a contract is ambiguous, uncertain or dependent on future events that cannot be controlled because a contract containing an uncertain event will be considered non-compliant within the principles of Islamic finance.
WHY IS THE MAISIR EXCLUDED BY HALAL INSURANCE?
A halal insurance excludes Maisir that is defined as a game or bet which is purely speculative has no place in Islamic finance for obvious reasons, while conventional insurance invests the premium of policyholders in speculative securities on the stock market, Islamic insurance has banned this type of financial transaction.
WHAT ARE THE REASONS FOR ISLAMIC INSURANCE TO EXCLUDE THE RIBA FROM ITS CONTRACTS?
The reasons why Islamic insurance prohibits Riba is the very principle of Islamic finance which prohibits usury, that is, generating money with money without working or producing tangible goods.
A halal insurance will never behave like an insurance fund which invests in the means of financing such as the bonds and the shares of companies that apply the principle of Riba.
ISLAMIC INSURANCE PRODUCTS
There are three models and several variations of the practice of Takaful:
- Mudhabarah model.
- Wakalah model.
- Combination of both models.
THE MUDHARABAH MODEL (BENEFICIARY SHARE)
The operator acts as a Mudarib (entrepreneur) with the participants as providers of capital; losses settled by the participants by prior agreement to participate in the profits; the assets acquired through the advanced capital remain the property of the shareholder also known as rabb-al-maal. The net profits are divided between the two parties according to predetermined proportions, while the loss on the capital is the responsibility of the only rabb-al-maal.
THE WAKALAH MODEL (BASED ON FEES)
Operator acts as an agent, manages funds in lieu of participants Receives fees for operating expenses. Wakalah / Mudharabah (based on fee / share) Wakalah for insurance activities and Mudharabah for investment profits.
Islamic insurance as an Islamic financial product has proven to be a very reliable and trusty investment and provident product compared to traditional insurance products that use the stock market or financial derivatives (speculation) to achieve performance.
TYPES OF ISLAMIC INSURANCE
Halal insurance offers financial coverage on the basis of solidarity in all areas of daily life for the individual, his family or the company. Islamic insurance takes the following forms:
- Car Takaful
- Takaful dwelling.
- Takaful family, a protection that covers the family in case of impossibility of the father to support themselves.
- Takaful health care in case of illness.
- Life Takaful.
- Takaful for student.
- Travel Takaful.
- Takaful for business.
- Travel Takaful.
- Takaful for business.
- Hajj Umrah Takaful.
- Furneral islamic insurance.
- Mosque insurance.
- Halal real estate borrower insurance.
An Islamic home insurance is a housing insurance that has the role of protecting any Muslim landlord or tenant against the risks associated with a home, but according to the laws of Islamic finance. Halal housing insurance has the same benefits as its conventional insurance policies. The Islamic products of a halal home insurance covers the insurance against: water damage, fire, breakage of ice, burglary.
OMRA HAJJ INSURANCE PILGRIMAGE HALAL INSURANCE
Hajj insurance or Islamic Umrah is an insurance that covers the Muslim assured during his pilgrimages to the holy Mecca with the particularity of respecting in that insurance policy the Islamic principles of sharia finance. The halal pilgrimage insurance is all the more important for the pilgrims, because it will confirm the conformity of the journey and therefore the pilgrimage with the principles of Islam. The Islamic pilgrimage insurance covers Muslims in Hajj and Umrah by offering them: medical assistance on site, travel cancellation insurance, loss of luggage, repatriation.
Retakaful is a way for any takaful insurer to reduces its risk of reimbursing large islamic insurance claims by insuring a party of its risk with another Takaful company. Retakaful is not different as resinsurance which is also applied within the conventioanl insurance industry.