Takaful comes from 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 and loss.

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 contact of exchange (muawadat), contains “excessive gharar” and is termed as fasid.

Risk or uncertainty can be divided into; Pure Risk and Spectacular 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 Risk 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 covers only Pure Risks and the claims are only payable in the event of loss to cover repairs, damage, replacements of property, or an agreed fixed amount.

A Takaful scheme gives an opportunity to practice the virtues of Islam, including self-purification. Surah Al Maa’iadah (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.

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

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.

All Takaful Companies and Window Takaful Operators are governed by the SECP’s Takaful Rules, 2012 that require the Takaful operators to induct a “Shariah Advisor” who is a Shariah Scholar of repute. Moreover, all Takaful companies/operators have to undergo an external “Shariah audit” as well, in addition to the customary accounting audit, in each accounting period.

Takaful is relatively 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 33 countries.

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

Although the end result may be 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.

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.