Your Guide to Takaful: The Islamic Insurance

What is Takaful?   

The word Takaful means solidarity, and it represents the Islamic insurance system, which is an alternative to the conventional insurance for Muslims. Takaful implements praised concepts, morals, and conduct in Islam, such as cooperation, brotherhood, shared responsibility, and charity. They are all put into practice through Takaful, which enables it to achieve financial benefit for individuals as well as communities.

How Does Takaful Operate?

Regarding conventional insurance, the insured and the insurer are two different parties, as the former is the policyholder, and the latter is the insurance company. However, In Takaful insurance the insurer and the insured are the same group of participants. When Muslims join Takaful, they agree to provide premiums per month that are used to cover damage and loss that any member of Takaful might endure.

These premiums are contributed to a common fund, which puts said contributions into Sharia-compliant investments. Such collective contribution and investment are incurred to shared profits as well as shared losses, and the profit made off the investments are returned to members of Takaful. However, there is no legal guarantee to provide positive returns, because when guaranteeing fixed profit to Takaful members, they become subject to receiving interest, which goes against the Islamic Sharia.

Islamic Alternative to Conventional Insurance

The way Takaful operates ensures that Takaful members do not only implement the principle of shared responsibility, but that they also implement the principle of risk sharing, which is not implemented in conventional insurance, as risk is transferred only to the insurance company.

Moreover, conventional insurance companies may distribute the profit made off investments to shareholders that may not necessarily be policyholders, which is unlike Takaful that distributes investment profits only to Takaful members.

In addition, Takaful is an alternative to conventional insurance for Muslims because Takaful investments are all complaint to the Islamic Sharia, while those of conventional insurance companies may not be compliant to the Islamic Sharia due to investing in funds that receive interest, which violates Riba prohibition in Islam.

What Does Takaful Cover?

The Islamic insurance coverage is similar to that of the conventional insurance companies, and Takaful is divided into the following types according to its coverage type:

  1. General Takaful:

General Takaful plans cover material losses and damage that individuals or corporates might endure. Consequently, General Takaful is concerned with said losses and damage through many plans as follows:

  • Property Takaful: Concerned with damaged buildings and machinery.
  • Marine Takaful: Concerned with damaged cargo and freight.
  • Motor Takaful: Concerned with damaged vehicles.
  • Miscellaneous General Takaful: Tailor made to corporate needs.


  1. Family Takaful:

Family Takaful plans cover losses and damage related to human life such as illness and death, and they are accordingly divided into multiple plans as follows:

  • Universal Takaful: Tailor made to the needs of the insured in order to secure them financially for their lifetime.
  • Marriage plan: Dedicated for parents to cover their children’s marriage costs.
  • Education plan: Established to provide financial assistance regarding education.

To Conclude

Takaful has served a great alternative to conventional insurance for Muslims as it follows the Islamic Sharia in its concepts and operations, making it a satisfactory choice for Muslims in regards to practicing their faith and getting their financial needs met.

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