What is Takaful insurance in Islam?

Economics Contributor
Takaful Insurance
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Life Insurance is haraam in Islam. It ensures Riba, Gharar and Maysir. But there is Islamic insurance specially designed for Muslims, it is called Takaful insurance.

What is Takaful insurance?

Takaful is a way of assuring your life. The word ‘Takaful’ means ‘mutual agreement’. This has been derived from the Arabic word ‘Kafalah’. Kafalah means to take care of. This sums up the basic intention of a Takaful insurance, to take care of Muslims and the Ummah.

Takaful is a Shariah-compliant mutual risk transfer agreement. This involves participants and operators rather than sellers and buyers. It also covers a number of different products such as life takaful, car takaful, health takaful and so on.

How does it function?

The takaful insurance is based on mutuality. A specific amount of money is contributed by the participants which forms a collective pool. Thus contribution is considered as donations. These donations create the Takaful fund.

The portion of the contribution that each person makes is calculated based on the type of coverage they need and their personal conditions. The management and distribution of the money are the responsibility of the takaful operator. Moreover, as every human activity is subjected to a risk of loss from misfortunes, the operator gives suitable compensations to the members who faced the loss.

The concept of insurance in Islamic Shariah is based on the principles of mutuality, cooperation and shared responsibility. Moreover, it is based on joint indemnity too. Accordingly, the same applies to the idea of takaful insurance. The risk or loss is not transferred but shared by the participants. Which are again returned to them at the end of the accounting period. This concept is different from conventional insurance.

Status of Takaful Insurance:

Islamic principles strongly support Takafful on the economic, ethical, moral and social dimensions, to increase equality and fairness for the benefit of ummah.

As Islamic finance is expanding there is likely to be a huge takeoff of other takaful such as pensions, education, marriage and health Takaful plans. There is also a huge scope for mortgage Takaful too.


Takaful is primarily different from regular insurance in the way the risk is assessed and handled. Moreover, how the takaful is managed. The development of Islamic insurance takaful requires extensive education of the Muslim public, besides the development of resources and expertise.

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