Takaful : Basis of Islamic Insurance
As Islamic insurance embraces the concepts of mutual protection and shared responsibility which was seen in the practise of blood money or diyah under the Arab tribal custom, which was accepted into Islamic practise on the verdict of the Prophet (Peace Be Upon Him), the system therefore evolves a programme by group of people co-operating among themselves to establish common resources for solidarity and mutuality. It is not one which is based on a contract of buying and selling where one party offers and sells protection and the other party accepts and buys the service at a certain cost or price. The practise can be visualised as a scheme or an arrangement by a group of people with common interests to guarantee or protect each other from a certain defined misfortune or mishap through the creation of a defined pool contributed out of their common resources. It therefore potrays the sincerity and willingness of the group to help and assist anyone among them in times of need.
In view of the fact that insurance is a necessity as part of modern living in order to provide cover against any mishap or disaster as well as a method to inculcate and garner regular savings, Muslim scholars agreed that the system which contains the good virtues of co-operation, mutuality and shared responsibility in line with Syariah may appropriately be based on the concept of takaful, which simply means joint-guarantee. Takaful is a noun stemming from the Arabic verb `kafal’ which means taking care of one’s needs.
Takaful is descriptive of a pact or practise among a group of members, called participants who agree to jointly guarantee themselves against any loss or damage that may fall upon any of them as defined in the pact. In the event of any member of participant suffers a loss due to the defined mishap or disaster, he or she would receive a certain sum of money or financial benefit from a fund as defined under the pact to help meet or mitigate that loss. In other words, the basic objective of takaful is to pay for a defined loss out of a defined fund. The loss will not be transferred as a liability to any intermediary as the operation does not fall under the contract of buying and selling whereby the seller would normally agree to provide the guarantee.
Essentially the concept of takaful is based on solidarity, responsibility and brotherhood among members or participants who have agreed to share defined losses to be paid out of defined assets. Thus, the terminology must not be seen and perceived to be merely playing around with words. As a matter of fact, it reflects the function performed.
Basically, in terms of operational framework the participants agree to devise a scheme whereby they themselves are the insureds as well as the insurers. Each participant is required to pay a premium as contribution to the common fund, known as the takaful fund. The level of contribution must commensurate with the degree of risks. Through experience and from statistics compiled from past performance, such contribution can easily be computed and calculated based on modern scientific principle.
However, the element of gambling is still said to be present when the defined loss is paid to the participant who has suffered a mishap or misfortune in view of the participant receiving more than what he has contributed in the first place. In order to secure total legitimacy from the standpoint of Syariah, every participant shall agree to give away as donation or tabarru’ a certain proportion or the full amount of his or her contribution for this purpose. In other words, the financial assistance paid to the participant resulting from the defined loss comes from a fund contributed by all participants by way of donation. In this way the element of gambling would be eliminated.
It is therefore clear the form of insurance acceptable to Islam is based on the system of co-operation, mutuality and shared responsibility as founded in the concept of takaful. Muslims jurists further resolved that this concept of insurance is acceptable in Islam because the policyholders would co-operate among themselves for their common good under which every one of them would in the first place agree to pay a certain subscription or contribution for the purpose of helping those who need assistance. In other words, the policyholders will benefit directly. The transaction is clear-cut and transparent.
With the incorporation of the concept of tabarru’, the operation of takaful would also fall under the donation contract. It is intended to divide losses and spread liability according to the community pooling system. Thus, the element of uncertainty or gharar is eliminated insofar as contribution and financial assistance are concerned. Hence, such payment will also be free from the element of gambling. In view that the defined fund belongs to the participant, the practise does not aim at deriving undue advantage at the expense of other individuals. In a way, takaful can be seen as a method for capital mobilisation to help members of the community who are in need in accordance with the practices and requirements of Syariah.
Reference: http://www.takaful-malaysia.com.my
In view of the fact that insurance is a necessity as part of modern living in order to provide cover against any mishap or disaster as well as a method to inculcate and garner regular savings, Muslim scholars agreed that the system which contains the good virtues of co-operation, mutuality and shared responsibility in line with Syariah may appropriately be based on the concept of takaful, which simply means joint-guarantee. Takaful is a noun stemming from the Arabic verb `kafal’ which means taking care of one’s needs.
Takaful is descriptive of a pact or practise among a group of members, called participants who agree to jointly guarantee themselves against any loss or damage that may fall upon any of them as defined in the pact. In the event of any member of participant suffers a loss due to the defined mishap or disaster, he or she would receive a certain sum of money or financial benefit from a fund as defined under the pact to help meet or mitigate that loss. In other words, the basic objective of takaful is to pay for a defined loss out of a defined fund. The loss will not be transferred as a liability to any intermediary as the operation does not fall under the contract of buying and selling whereby the seller would normally agree to provide the guarantee.
Essentially the concept of takaful is based on solidarity, responsibility and brotherhood among members or participants who have agreed to share defined losses to be paid out of defined assets. Thus, the terminology must not be seen and perceived to be merely playing around with words. As a matter of fact, it reflects the function performed.
Basically, in terms of operational framework the participants agree to devise a scheme whereby they themselves are the insureds as well as the insurers. Each participant is required to pay a premium as contribution to the common fund, known as the takaful fund. The level of contribution must commensurate with the degree of risks. Through experience and from statistics compiled from past performance, such contribution can easily be computed and calculated based on modern scientific principle.
However, the element of gambling is still said to be present when the defined loss is paid to the participant who has suffered a mishap or misfortune in view of the participant receiving more than what he has contributed in the first place. In order to secure total legitimacy from the standpoint of Syariah, every participant shall agree to give away as donation or tabarru’ a certain proportion or the full amount of his or her contribution for this purpose. In other words, the financial assistance paid to the participant resulting from the defined loss comes from a fund contributed by all participants by way of donation. In this way the element of gambling would be eliminated.
It is therefore clear the form of insurance acceptable to Islam is based on the system of co-operation, mutuality and shared responsibility as founded in the concept of takaful. Muslims jurists further resolved that this concept of insurance is acceptable in Islam because the policyholders would co-operate among themselves for their common good under which every one of them would in the first place agree to pay a certain subscription or contribution for the purpose of helping those who need assistance. In other words, the policyholders will benefit directly. The transaction is clear-cut and transparent.
With the incorporation of the concept of tabarru’, the operation of takaful would also fall under the donation contract. It is intended to divide losses and spread liability according to the community pooling system. Thus, the element of uncertainty or gharar is eliminated insofar as contribution and financial assistance are concerned. Hence, such payment will also be free from the element of gambling. In view that the defined fund belongs to the participant, the practise does not aim at deriving undue advantage at the expense of other individuals. In a way, takaful can be seen as a method for capital mobilisation to help members of the community who are in need in accordance with the practices and requirements of Syariah.
Reference: http://www.takaful-malaysia.com.my
posted by tilmiz @ 11:40 PM
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