Thursday, March 27, 2008

The Principles of Takaful

a. Policyholders co-operate among themselves for their common good.
b. Every policyholder pays his subscription to help those that need assistance.
c. Losses are divided and liabilities spread according to the community pooling system.
d. Uncertainty is eliminated in respect of subscription and compensation.
e. It does not derive advantage at the cost of others.

Theoretically, Takaful is perceived as
cooperative insurance, where members contribute a certain sum of money to a common pool. The purpose of this system is not profits but to uphold the principle of "bear ye one another's burden."

Commercial insurance is actually not allowed for Muslims because it contains the following elements:
Al-Gharar (Uncertainty) ( ii) Al-Maisir (Gambling) (iii) Riba (Interest)

There are three (3) models and several variations on how takaful can be implemented:
i) Mudharabah Model, (ii) Wakalah Model, (iii) Combination of both