Is Risk Protection (insurance) against Tawakkul (total dependence upon Allah (SWT)?

No. Human actions change the Will of Allah (SWT) for our destiny. Whether a person has insurance/Takaful or not has no effect on future events. However, we are instructed to take precautions and then fully trust and depend upon Almighty Allah (SWT). In a Hadith narrated by Anas bin Malik, one day Prophet Muhammad (PBUH) noticed a Bedouin leaving his camel without tying it. He (PBUH) asked the Bedouin, “Why don’t you tie down your camel”? The Bedouin answered, “I put my trust in Allah (SWT)”. The Prophet (PBUH) then said, “Tie your camel first, then put your trust in Allah (SWT)”. [As quoted in Sunan At-Tirmidhi, 1981.]

Is all Risk Protection (insurance) Haraam (prohibited)?

The Fiqh Council of World Muslim League (1398H/1978AD) resolution and The Fiqh Council of Organization of Islamic Conference (1405H/1985AD) in Jeddah resolved that conventional insurance as presently practiced is Haraam, and that cooperative insurance (Takaful) is permissible and fully consistent with Shariah principles. Hence, conventional insurance is said to be prohibited for Muslims (because it contains the elements of Riba, Al Maisir, and Al Gharar). By contrast, Takaful provides risk protection in accordance with Shariah based on the principles of Ta’awun (mutual assistance), brotherhood, piety and ethical operations.

What is Takaful?

Takaful comes from the Arabic root-word ‘kafala’ which means to guarantee, to help, to take care of each other’s needs. Takaful refers to mutual protection and joint guarantee. Operationally, Takaful refers to participants mutually contributing to the same fund with the purpose of having mutual indemnity in the case of peril or loss.

How is uncertainty (gharar) eliminated from Takaful contract?

Uncertainty can never be eliminated; it remains in the Takaful Contract as well. But, since the Takaful contract comes under Tabarruaat, the uncertainty (gharar) is considered to be within tolerable limits under Shariah. Insurance, being a contract of exchange (muawadat), contains “excessive gharar” and is termed as fasid.

All Insurance is a form of Gambling or Wagering, which is forbidden in Islam.

Risk or uncertainty can be divided into: Pure Risk and Speculative Risk. Pure Risk involves the possibility of loss or no loss. For example, damage to property due to fire. Pure Risks are the subject of insurance risk protection and Takaful. On the other hand, Speculative Risk involves the possibility of loss, no loss or gain. For example, venturing into a new business, or gambling on horse race. Speculative Risks that include a potential Gain or Profit cannot be insured. Takaful schemes use the principle of indemnification to compensate for the loss that occurs to a Takaful Participant. Takaful insures only Pure Risks and the claims are only payable in the event of Loss to cover repairs, damage, replacement of property, or an agreed fixed amount.

 Does a takaful company seek to maximize profits and take benefits away from Policyholders?

Takaful operators are mutual or cooperative entities. The goal of Takaful is community well-being and self-sustaining operations, not high profits. Under the Takaful Mudarabah Model, surplus (or profits) is shared fairly and equitably between the shareholders and the policyholders (i.e. the ‘Participants’). Under the Takaful Wakalah Model, surplus is returned entirely to the Participants.

Do I need insurance/Takaful?

A Takaful scheme gives us an opportunity to practice the virtues of Islam, including self-purification. Surah Al Maa’idah (V.2) says: “Help one another in furthering virtue and Taqwa (God-consciousness), and do not help one another in evil and transgression”. In a Hadith narrated by Ahmad and Abu Daud: Whosoever fulfills the intentions (needs) of his brother, Allah will fulfill his intentions. And Allah always helps those who help their brothers in need. The first Constitution in Medina (622 CE) arranged by Prophet Muhammed (PBUH) contained three aspects directly related to risk protection: social insurance for the Jews, Ansar and Christians; Article 3 concerning 'wergild' or ‘blood money’; and provision for Fidyah (ransom) and 'aaqila'. We should follow his (PBUH) example to meet our needs and social obligations.  

Do Takaful contributions entail a higher rate than the conventional insurance premium?

No. Takaful companies are as competitive as their conventional insurance counterparts. Opting for Takaful will not make you pay any higher costs, as such.

Can Takaful cover theft of my car?

Yes, Takaful companies offer the same variety of products offered by any insurance company, whether it is Fire, Marine, Motor, etc. In addition, most of the Takaful operators have the expertise and experience to deliver tailor-made specific solutions for the benefit and convenience of their clients. The only exceptions are those risks that are not in conformity with the Shariah, e.g. breweries, casinos etc.

How will I get a claim from a Takaful company?

All procedures, including claims, are the same as in conventional insurance companies. The difference lies in the nature of the contract, not in the procedures.

How is it ensured that all activities of Takaful companies are Shariah compliant?

All Takaful companies are governed by the SECP's Takaful Rules, 2012 that require the Takaful operators to appoint a “Shariah Advisor” in accordance with the provisions of the Rules. Moreover, all Takaful Operators have to undergo a “Shariah audit” as well, in addition to the customary Accounting audit, in each accounting period.

Is Takaful transacted in other countries?

Takaful is a new phenomenon in Pakistan. The first Takaful company was established in 1979 - The Islamic Insurance Company of Sudan. Now, there are more than 100 Takaful Companies in over 20 countries.

How many Takaful models are there?

In Islam, there is room for diversity within certain prescribed parameters. Over the centuries, several Takaful Models have evolved which are approved by the Islamic scholars. While they all share the same fundamental goal of cooperative risk sharing, these models differ slightly in legal structure and organizational operations. Takaful Models are usually described by the Islamic contracts used; namely, Hibbah, or 100% Tabarru' [Sudan], or Al Mudarabah [Bahrain/Malaysia], or Al Wakalah [Saudi Arabia], or Wakala/Waqf [Pakistan].

How is Takaful companies’ investment income Riba-free?

Unlike insurance companies, whose investment income may contain Riba, Takaful companies invest funds in Property, Islamic Banks, Shariah compliant Stocks and other Shariah approved securities like Sukuk bonds etc.

Is Takaful just a change of label?

Although the end result is the same since both insurance and Takaful aim to provide compensation against possible losses, yet the crucial difference lies in the way that each does this. The notion “ends justify means” does not hold when it comes to Islam where both the ends as well as the means have to be in order. Chicken can either be slaughtered or given an electric shock; both achieve the same end, a dead chicken. However, the former way makes the meat Halaal for eating whereas the later renders it Haraam.

What is meant by Surplus Sharing?

The Takaful Operator acts only as the Wakeel of the Waqf Fund. If, at the end of the year, there is surplus in the Fund (i.e. after adding all its income and deducting all the outgo), such surplus will be distributed amongst the participants proportionately after taking into account any claim benefits already availed. 

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