If you have been considering an insurance policy and doing some research, you would by now come across the term Takaful offered by most of the insurance providers. What exactly is Takaful and how does it affect you?
What is it?
Basically, Takaful is a type of Islamic-finance based insurance. Catered to Muslims who are looking for insurance plans that are Syariah compliant. Takaful packages are also available for non-Muslims as there are no restrictions whatsoever. To some extent, Takaful is said to be more secure than conventional insurance packages but the judgment and decision lie with the consumer. How this works is that members collectively contribute the funds into a system like a pool. This will then guarantee any loss to the amount among each other. The underlying concept of Takaful is based on Syariah principles which cover cooperation and protection for everyone involved.
There are many types of Takaful insurance plans where it covers general insurance, life insurance, health and medical insurance as well as many others.
The need for Takaful?
Takaful insurance was introduced into the market as an option to the conventional insurance plans. This is because some schools of thought were with the perception that conventional investment concepts did not comply with the restrictions in principles of interest (riba), uncertainty (al-gharar) and chance (or gambling known as al-maisir). These principles are considered to be ‘haram’ in the Syariah principles.
Main concepts of Takaful
The main factor covering Takaful is that these packages do not rely on chance or any slight doubt about it. Instead, the money is created via a pool from the policyholders or members. In other words, the more people contribute to it, the higher the amount will be in the pool. The contract of agreement in the Takaful plan will explicitly spell out the length, the risk levels and any other issues much like how insurance policy works.
Like a Mutual Fund
With a large pool of contributors, the Takaful fund is then managed by a certified and legitimate Takaful manager. All the related costs will be taken into consideration including claims management, wages and marketing. The objective is to have a fund that is self-sustaining that can support the guarantee promised to the members. Any payout or claims must be done according to Islamic banking principles.
How attractive is Takaful?
In a recent survey, it was found that the global Takaful market is valued close to US20 billion before 2018. A majority of purchases here involve life and family insurance and the number is expected to grow exponentially in the next 5 years or so. Analysts have forecasted that by 2023, the number would have doubled. What makes this market so attractive is that Takaful appeals to the Muslim community and is available for non-Muslims as well. On one hand, it has a ready market of customers (Muslims) which can be expanded to the others. Among the insurance companies in Malaysia that offer Takaful-based plans include:
- Prudential BSN Takaful Berhad
- Zurich Malaysia
- Takaful Malaysia