Insurance Vs Takaful
Content
TAKAFUL:
We eat, drink, and exercise to keep ourselves fit and healthy, because we know
that health is important. We know that with a good body and a good mind we
can work better and enjoy our lives with our families even more. On realizing
this, we become more responsible and look after ourselves and our assets
diligently. We even stop smoking. We keep our doors locked. We start to drive
carefully. We do all this because we care. We don’t want to see our loved ones
be exposed to any kind of danger. But what if, despite all our efforts, something
goes wrong? What if there is a robbery? What if there is an accident? The
possibilities are endless and real. Then what? Can you imagine the kind of
mental and financial torture a person has to go through to deal with it? They
lose their sleep. They lose their peace of mind. They lose their strength and the
will to go on. Worst of all is that this could happen to anyone of us at anytime
and anywhere. There is really not much we can do about it on the individual
level. But if we would do it collectively; if we mutually guarantee to help each
other in times of need, like we used to do in the early days of Islam then we
could significantly reduce the level of financial loss. This is exactly where
Takaful comes into play. This ‘mutual guarantee’ is what Takaful is really all
about.
Takaful is an arrangement between members of communities where each
member mutually guarantees to help the other in times of need. A family could
be troubled by the loss of the breadwinner’s salary either due to death, severe
illness or a bad accident. Imagine the financial distress they would be going
through. Isn’t it our moral duty to help such families? Takaful is one way of
fulfilling this responsibility. Remember, in the future it could be us who would
need the same help. Therefore it is important that we help those in distress
while we can and know at same time that the others will do the same for you.
This is the basic foundation of Takaful. When you decide to become a
member/participant, you regularly contribute a small amount called
Contribution from your savings as Taburru or donation which is pooled into a
Waqf Fund. Just imagine, if thousands and millions of people make
contributions in the Waqf, how much money would there be! This is like the
Waqf of a Masjid that provides a place of worship and education to thousands
of people and children. Like Waqf Masjid, Waqf Takaful is also a social welfare
service. Whenever a member’s family is in financial trouble, the Waqf Takaful
comes to the rescue by compensating for their loss. This way it helps them to
get over their immediate trouble and move on with their lives. Please don’t
forget, it is us, you and I, as members of Takaful, who make all this happen.
Obviously, as more and more people join Takaful, and the Waqf Fund gets
bigger and bigger, we would need professionals to look after it. We need to trust
these professionals with making the best decisions for the continuity and the
sustainability of the Takaful system. It is important to know that Waqf Takaful
is not only about protection. Yes, while Takaful protects members/participants
from financial losses incurring from untoward exigencies, it also provides them
with opportunities of earning money at the same time.
This is done through investments. The Takaful Operator prudently invests in
halal businesses with the objective to increase the value of the Waqf Fund and
also to give returns to its members/participants for their contributions. This
system works best if the members/participants pay their contributions
regularly and continue their membership for the complete term. On top of this,
each year, the members/participants share the surplus of the Waqf Pool. The
surplus is the amount remaining in the Waqf after meeting all the expenses
and the claims.
Takaful is based on the golden principles of brotherhood, cooperation,
mutuality and solidarity. While insurance companies claim that they provide a
similar service, it is not so. Conventional insurance companies contain socioeconomic ills such as Riba, Gharrar, and Maysir which are harmful to society.
In Takaful, however, a Shariah Supervisory Board monitors and regulates every
function and process of the operations to keep in line with the principles of
Islamic Shariah. Takaful, therefore, is a much-needed addition for the welfare
of a society and its members and quite simply, a necessity no person should do
without. It is a perfect loss-mitigation tool that can be used both by individuals
and businesses alike, to meet their specific needs and requirements. Family
Takaful deals directly with protecting a person from life-related financial losses
whereas General Takaful deals with the non-life financial losses like theft of a
car, fire or mishaps at home etc.
Takaful Definition:
Takaful comes from the Arabic root-word ‘kafala’ which means guarantee.
Takaful means mutual protection and joint guarantee. Operationally, Takaful
refers to participants mutually contributing to a common fund with the
purpose of having mutual indemnity in the case of peril or loss.
Takaful is a Shariah compliant arrangement whereby individuals in the
community jointly guarantee themselves against future losses or damages. The
key elements of any Takaful arrangement are the participants, the Takaful Pool,
and the Takaful Operator (Company). The Takaful Pool is managed in the shape
of Waqf (Endowment) by the Takaful Operator which is actually just an operator
and carries out its role in the form of a Wakeel (agent). Participants pool their
contribution, which are given in the form of donations, into the Waqf from
which they may benefit in the event that they suffer a loss. All claims are paid
out by the Waqf and not the Takaful Operator.
You’re probably thinking that this is insurance but in reality it’s not. Insurance
is a tool for risk mitigation and financial protection; Takaful is also a tool for
risk mitigation and financial protection. They serve a similar purpose but that
does not mean that they are the same. A good way to exemplify this is the
relationship between frozen yogurt and ice cream. When eaten frozen yogurt
looks and tastes just like ice cream, yet it is definitely not ice cream. It
generally serves as an alternative to ice cream, one which is usually lower in fat
and calories. Its price may be the same, or a little higher or lower. What is most
important is that although it is a perfect alternative it is one which is healthier.
Risk mitigation and financial protection are things which everybody needs to be
concerned about. In order to effectively carry this out they need a tool which is
not only effective in mitigating risk but also immaculately serviced,
competitively priced, is in compliance with our ethical and religious beliefs and,
most importantly, better for the individual and the community. That tool is
Takaful.
Why Takaful:
We have read the benefits of insurance which effectively convey us that the
mechanism of insurance is benefiting society in many ways. If a system is
beneficial then why there are objections about the system. Majority of Islamic
scholars raised objections about insurance. These objections have been
effectively addressed in system Takaful. Let’s discuss these objections and their
remedies in takaful in detail:
1)
2)
3)
4)
Risk transfer mechanism V/S Risk sharing mechanism
Gharrar (Uncertainty)
Riba – direct and indirect
Gambling
Risk transfer mechanism V/S Risk sharing mechanism:
As we discussed in our earlier classes that insurance is a risk transfer
mechanism in which financial risk of a loss is transferred to insurer. Islamic
scholars object the risk transfer process that it is against our religion to
transfer, sell the risk to any person or any other entity against the premium
paid. Instead of risk transfer mechanism, they suggest for risk sharing
mechanism. Let’s explain it with the help of an example:
Example:
I own a car worth Rs. 400, 000/- I face the financial risk of my car being
damaged in accident or being stolen by someone. Therefore, I have the option of
approaching a general insurance company and ask them to insure my car
against the risks of damage and the theft. They may accept it and ask me to
pay them premium of Rs. 10, 000/- in consideration. I can pay them and
transfer my financial risk regarding my car to the insurance company. I work in
a company with nearly 100 employees. All of them own a car worth Rs. 400,
000/- They also fear the same risks as I did regarding the car and they can
also approach a general insurance company and can arrange insurance for
their cars by paying premium of Rs. 10, 000 each. Now, all of us can have our
peace of mind by transferring the financial risk to the insurer.
But at the same time, we all feel that although we can get our peace of mind by
insuring our car but by arranging it by participating in a risk transfer process
which is considered objectionable by most of our Islamic scholars. So, we think
about another option.
We are 100 employees in our work area and each owns a car. For simplicity, we
consider the value of every car to be Rs. 400, 000/- Now, we are ready to forego
Rs. 10, 000/- for management of damage and theft risks posed to our cars.
Total amount ready to forego by 100 employees = 10, 000 x 100 = 1,000,000/Therefore, instead of paying Rs. 1,000, 000/- to the insurance company, we all
make a pool fund and place the amount of Rs. 1, 000, 000/- and decide among
each other that if car of anyone of us gets damaged accidently or get stolen,
that person will be compensated from that pool fund. Here, you can note that
risk has not been transferred to any person or any legal entity like an
insurance company but the risk has been shared by those individuals who
have contributed Rs. 10, 000/- each in the pool fund.
Now if the members of the pool increase from 100 to 1000 or 10, 000 then the
tasks of collecting contribution for the fund, processing their compensation
from the pool fund if loss occurs, requires some individuals to perform them.
So, the members of the pool fund decide to hire four professionals well versed
in collecting the contributions for the pool fund and arranging their
compensations. Members decides pay those individuals for their duties and ask
them to pay the compensations from the pool fund and if the amount exhausts
in the fund, ask the members to make further contributions. Now, members
own the pool fund while the individuals only take care of the fund.
There are always three parties in Takaful:
1) Pool fund
2) Members of the pool fund
3) Takaful operator
In the above example, the individuals performed the function of a takaful
operator.
With this arrangement, the 100 employees can have a real peace of mind as
they have arranged a mechanism in which the pool fund is there to compensate
them if the defined losses of damage and theft occurs to their car and such
arrangements is not objected by our Islamic scholars but instead support them
because it serves the real spirit of our religion for helping those who need it.
GHARRAR:
It literally means uncertainty. It can be defined as the sale of probable items
whose existence or characteristics are not certain, due to the risky nature.
Many classical examples of Gharrar were provided explicitly in the Hadith. They
include the sale of fish in the sea, birds in the sky, un- ripened fruits on the
tree, etc. Here, it is important to mention that insurance is sale and purchase
agreement. Gharrar also exists in insurance but how. With the help of an
example, let’s explain Gharrar first and then existence of Gharrar in insurance:
EXAMPLE:
I hold something small in my hand and my fist is closed. None can see what I
am holding. In front of people, I announce that whatever I hold in my hand, I
sell it for Rs. 100/- Now, nobody knows what is in my hand. If someone
purchases it, the chance is there it won’t be of any use for him. So if he
purchases it while later on found that it was only a match box and its worth
was much less than Rs. 100/- That person would feel himself at loss once he
found out the match box. Not knowing about the purchasing item, left an
uncertainty in the transaction and resulted in a dispute or displeasure for the
buyer. To avoid such kinds of disputes and displeasures, our religion always
strives to bring more and more transparencies especially in sale and purchase
agreements. Uncertainty is not allowed at all in sale and purchase agreements.
Uncertainty also exists in insurance. When a person purchases insurance
coverage for his car worth Rs. 400, 000/- and pays premium of Rs. 10, 000/to the insurance company. When the premium is paid to the insurance
company, the company becomes an asset for the insurance company and if loss
occurs, insurance company has to pay it from its own accounts. Now, it is not
known to both, the insured and the insurer that whether the loss will occur or
not or if it occurs, how much will be the loss amount and when will it occur. If
loss doesn’t occur, the client will lose the money and insurer will make profit. If
the car gets stolen, the insured will receive claim Rs. 400, 000/- and will be at
profit while insurer will be at loss.
Due to presence of such uncertainties (Gharrar) and insurance agreement
being a sale and purchase agreement between insured and insurer, Islamic
scholars declare insurance agreement as prohibited.
In takaful, the agreement is that of Taburru in which the members contribute
into the pool fund with the intention that if any defined loss occurs, the
members will be compensated from that fund. Here, no sale and purchase
agreement occurs. Takaful operators only take care of pool fund. They collect
contributions on behalf of the pool fund and pay losses from the pool fund i.e.
not from the own account of the takaful operators.
Now the question arises, same kind of uncertainty also exists in takaful also. If
anyone becomes member of the pool fund by contributing in the pool fund, he
doesn’t know whether loss will occur and if occur then when and what will be
the amount of loss. Answer to this question is simple. Nature of agreement in
takaful is different. It is agreement of Taburru instead of sale and purchase
agreement and so such uncertainty is allowed in takaful. Let me explain the
change in nature of agreement by extending the above mentioned example:
Example:
Let’s go back to the example where an item was offered for sale while it was
kept secret in a close fisted hand. In that example, the item was offered for
sale. Now let’s suppose, if someone is holding the same item in a close fisted
hand and declares that he wants to make it a gift to the person who raises his
hand first and so a person raises hand quickly before others and get that item
which finds out to be a match box. Here, in this transaction, uncertainty
existed that nobody knew what was lying in the close fisted hand but as it was
not offered for a price and was a gift so the agreement didn’t become prohibited
as it was not a sale and purchase agreement.
In the same way, in takaful, the agreement is that of Taburru instead of sale
and purchase, therefore, uncertainty to an extent doesn’t make it prohibited.
GAMBLING: (Maysir):
Making profits at the cost of loss of other party without giving him any product
r service is gambling. For gambling following conditions are required:
1) There must be two parties who gamble with each other
2) Outcome of the events should be beyond their control
3) None of them give any service or product to each other.
For example if two people compete in a race with the following conditions, that
if you surpass me, then I will give you a thousand pounds and if I surpass you
then you will have to give me a thousand pounds. Or if someone says, 'If it
rains today you will have to give me a thousand pounds and if it does not rain
then I will give you a thousand pounds.
When you insure your house, the money you pay is called a “premium”. The
event which neither you nor the insurance company controls is that a fire will
damage your home during the next year. If there's no fire, the insurance
company keeps your premium. If there is a fire, the insurance company pays
you the amount of the damage. This fits the gambling scenario exactly. Buying
insurance is a form of gambling. Insurance companies have worked long and
hard and very successfully to convince us of the opposite. They say that if you
don't have insurance, you're gambling. They talk about protecting us against
fire. But fire is beyond their control; they cannot protect against fire. Perhaps
they talk about protecting us from loss due to fire. But they can't stop the fire
from burning your photos, nor can they limit the damage caused by the fire in
any way. The only thing they can do is pay you money when a fire occurs. You
have made a bet with them; you bet that fire will occur and they bet that it will
not. If it does not occur, you lose the bet, and the premium is your loss; if it
does occur, you win the bet, and they pay you. Perhaps the amount they pay
you is the amount you lost in the fire; that way it feels like they are paying you
back. But the amount they pay you doesn't have to be the same as the amount
you lost in the fire (and if you read the fine print, you see that it often isn't);
you get whatever you and the insurance company have agreed to. Of course, an
insurance company would never call it “making a bet”. They would say that
they want to insure you against loss, but as you will see, they do a good job of
ensuring that you lose.
Riba:
Conventional endowment insurance policies promising a contractuallyguaranteed payment, hence offends the riba prohibition. The element of riba
also exists in the profit of investments used for the payment of policyholders’
claims by the conventional insurance companies. This is because most of the
insurance funds are invested by them in financial instruments such as bonds
and stacks which may contain elements of Riba.
We eat, drink, and exercise to keep ourselves fit and healthy, because we know
that health is important. We know that with a good body and a good mind we
can work better and enjoy our lives with our families even more. On realizing
this, we become more responsible and look after ourselves and our assets
diligently. We even stop smoking. We keep our doors locked. We start to drive
carefully. We do all this because we care. We don’t want to see our loved ones
be exposed to any kind of danger. But what if, despite all our efforts, something
goes wrong? What if there is a robbery? What if there is an accident? The
possibilities are endless and real. Then what? Can you imagine the kind of
mental and financial torture a person has to go through to deal with it? They
lose their sleep. They lose their peace of mind. They lose their strength and the
will to go on. Worst of all is that this could happen to anyone of us at anytime
and anywhere. There is really not much we can do about it on the individual
level. But if we would do it collectively; if we mutually guarantee to help each
other in times of need, like we used to do in the early days of Islam then we
could significantly reduce the level of financial loss. This is exactly where
Takaful comes into play. This ‘mutual guarantee’ is what Takaful is really all
about.
Takaful is an arrangement between members of communities where each
member mutually guarantees to help the other in times of need. A family could
be troubled by the loss of the breadwinner’s salary either due to death, severe
illness or a bad accident. Imagine the financial distress they would be going
through. Isn’t it our moral duty to help such families? Takaful is one way of
fulfilling this responsibility. Remember, in the future it could be us who would
need the same help. Therefore it is important that we help those in distress
while we can and know at same time that the others will do the same for you.
This is the basic foundation of Takaful. When you decide to become a
member/participant, you regularly contribute a small amount called
Contribution from your savings as Taburru or donation which is pooled into a
Waqf Fund. Just imagine, if thousands and millions of people make
contributions in the Waqf, how much money would there be! This is like the
Waqf of a Masjid that provides a place of worship and education to thousands
of people and children. Like Waqf Masjid, Waqf Takaful is also a social welfare
service. Whenever a member’s family is in financial trouble, the Waqf Takaful
comes to the rescue by compensating for their loss. This way it helps them to
get over their immediate trouble and move on with their lives. Please don’t
forget, it is us, you and I, as members of Takaful, who make all this happen.
Obviously, as more and more people join Takaful, and the Waqf Fund gets
bigger and bigger, we would need professionals to look after it. We need to trust
these professionals with making the best decisions for the continuity and the
sustainability of the Takaful system. It is important to know that Waqf Takaful
is not only about protection. Yes, while Takaful protects members/participants
from financial losses incurring from untoward exigencies, it also provides them
with opportunities of earning money at the same time.
This is done through investments. The Takaful Operator prudently invests in
halal businesses with the objective to increase the value of the Waqf Fund and
also to give returns to its members/participants for their contributions. This
system works best if the members/participants pay their contributions
regularly and continue their membership for the complete term. On top of this,
each year, the members/participants share the surplus of the Waqf Pool. The
surplus is the amount remaining in the Waqf after meeting all the expenses
and the claims.
Takaful is based on the golden principles of brotherhood, cooperation,
mutuality and solidarity. While insurance companies claim that they provide a
similar service, it is not so. Conventional insurance companies contain socioeconomic ills such as Riba, Gharrar, and Maysir which are harmful to society.
In Takaful, however, a Shariah Supervisory Board monitors and regulates every
function and process of the operations to keep in line with the principles of
Islamic Shariah. Takaful, therefore, is a much-needed addition for the welfare
of a society and its members and quite simply, a necessity no person should do
without. It is a perfect loss-mitigation tool that can be used both by individuals
and businesses alike, to meet their specific needs and requirements. Family
Takaful deals directly with protecting a person from life-related financial losses
whereas General Takaful deals with the non-life financial losses like theft of a
car, fire or mishaps at home etc.
Takaful Definition:
Takaful comes from the Arabic root-word ‘kafala’ which means guarantee.
Takaful means mutual protection and joint guarantee. Operationally, Takaful
refers to participants mutually contributing to a common fund with the
purpose of having mutual indemnity in the case of peril or loss.
Takaful is a Shariah compliant arrangement whereby individuals in the
community jointly guarantee themselves against future losses or damages. The
key elements of any Takaful arrangement are the participants, the Takaful Pool,
and the Takaful Operator (Company). The Takaful Pool is managed in the shape
of Waqf (Endowment) by the Takaful Operator which is actually just an operator
and carries out its role in the form of a Wakeel (agent). Participants pool their
contribution, which are given in the form of donations, into the Waqf from
which they may benefit in the event that they suffer a loss. All claims are paid
out by the Waqf and not the Takaful Operator.
You’re probably thinking that this is insurance but in reality it’s not. Insurance
is a tool for risk mitigation and financial protection; Takaful is also a tool for
risk mitigation and financial protection. They serve a similar purpose but that
does not mean that they are the same. A good way to exemplify this is the
relationship between frozen yogurt and ice cream. When eaten frozen yogurt
looks and tastes just like ice cream, yet it is definitely not ice cream. It
generally serves as an alternative to ice cream, one which is usually lower in fat
and calories. Its price may be the same, or a little higher or lower. What is most
important is that although it is a perfect alternative it is one which is healthier.
Risk mitigation and financial protection are things which everybody needs to be
concerned about. In order to effectively carry this out they need a tool which is
not only effective in mitigating risk but also immaculately serviced,
competitively priced, is in compliance with our ethical and religious beliefs and,
most importantly, better for the individual and the community. That tool is
Takaful.
Why Takaful:
We have read the benefits of insurance which effectively convey us that the
mechanism of insurance is benefiting society in many ways. If a system is
beneficial then why there are objections about the system. Majority of Islamic
scholars raised objections about insurance. These objections have been
effectively addressed in system Takaful. Let’s discuss these objections and their
remedies in takaful in detail:
1)
2)
3)
4)
Risk transfer mechanism V/S Risk sharing mechanism
Gharrar (Uncertainty)
Riba – direct and indirect
Gambling
Risk transfer mechanism V/S Risk sharing mechanism:
As we discussed in our earlier classes that insurance is a risk transfer
mechanism in which financial risk of a loss is transferred to insurer. Islamic
scholars object the risk transfer process that it is against our religion to
transfer, sell the risk to any person or any other entity against the premium
paid. Instead of risk transfer mechanism, they suggest for risk sharing
mechanism. Let’s explain it with the help of an example:
Example:
I own a car worth Rs. 400, 000/- I face the financial risk of my car being
damaged in accident or being stolen by someone. Therefore, I have the option of
approaching a general insurance company and ask them to insure my car
against the risks of damage and the theft. They may accept it and ask me to
pay them premium of Rs. 10, 000/- in consideration. I can pay them and
transfer my financial risk regarding my car to the insurance company. I work in
a company with nearly 100 employees. All of them own a car worth Rs. 400,
000/- They also fear the same risks as I did regarding the car and they can
also approach a general insurance company and can arrange insurance for
their cars by paying premium of Rs. 10, 000 each. Now, all of us can have our
peace of mind by transferring the financial risk to the insurer.
But at the same time, we all feel that although we can get our peace of mind by
insuring our car but by arranging it by participating in a risk transfer process
which is considered objectionable by most of our Islamic scholars. So, we think
about another option.
We are 100 employees in our work area and each owns a car. For simplicity, we
consider the value of every car to be Rs. 400, 000/- Now, we are ready to forego
Rs. 10, 000/- for management of damage and theft risks posed to our cars.
Total amount ready to forego by 100 employees = 10, 000 x 100 = 1,000,000/Therefore, instead of paying Rs. 1,000, 000/- to the insurance company, we all
make a pool fund and place the amount of Rs. 1, 000, 000/- and decide among
each other that if car of anyone of us gets damaged accidently or get stolen,
that person will be compensated from that pool fund. Here, you can note that
risk has not been transferred to any person or any legal entity like an
insurance company but the risk has been shared by those individuals who
have contributed Rs. 10, 000/- each in the pool fund.
Now if the members of the pool increase from 100 to 1000 or 10, 000 then the
tasks of collecting contribution for the fund, processing their compensation
from the pool fund if loss occurs, requires some individuals to perform them.
So, the members of the pool fund decide to hire four professionals well versed
in collecting the contributions for the pool fund and arranging their
compensations. Members decides pay those individuals for their duties and ask
them to pay the compensations from the pool fund and if the amount exhausts
in the fund, ask the members to make further contributions. Now, members
own the pool fund while the individuals only take care of the fund.
There are always three parties in Takaful:
1) Pool fund
2) Members of the pool fund
3) Takaful operator
In the above example, the individuals performed the function of a takaful
operator.
With this arrangement, the 100 employees can have a real peace of mind as
they have arranged a mechanism in which the pool fund is there to compensate
them if the defined losses of damage and theft occurs to their car and such
arrangements is not objected by our Islamic scholars but instead support them
because it serves the real spirit of our religion for helping those who need it.
GHARRAR:
It literally means uncertainty. It can be defined as the sale of probable items
whose existence or characteristics are not certain, due to the risky nature.
Many classical examples of Gharrar were provided explicitly in the Hadith. They
include the sale of fish in the sea, birds in the sky, un- ripened fruits on the
tree, etc. Here, it is important to mention that insurance is sale and purchase
agreement. Gharrar also exists in insurance but how. With the help of an
example, let’s explain Gharrar first and then existence of Gharrar in insurance:
EXAMPLE:
I hold something small in my hand and my fist is closed. None can see what I
am holding. In front of people, I announce that whatever I hold in my hand, I
sell it for Rs. 100/- Now, nobody knows what is in my hand. If someone
purchases it, the chance is there it won’t be of any use for him. So if he
purchases it while later on found that it was only a match box and its worth
was much less than Rs. 100/- That person would feel himself at loss once he
found out the match box. Not knowing about the purchasing item, left an
uncertainty in the transaction and resulted in a dispute or displeasure for the
buyer. To avoid such kinds of disputes and displeasures, our religion always
strives to bring more and more transparencies especially in sale and purchase
agreements. Uncertainty is not allowed at all in sale and purchase agreements.
Uncertainty also exists in insurance. When a person purchases insurance
coverage for his car worth Rs. 400, 000/- and pays premium of Rs. 10, 000/to the insurance company. When the premium is paid to the insurance
company, the company becomes an asset for the insurance company and if loss
occurs, insurance company has to pay it from its own accounts. Now, it is not
known to both, the insured and the insurer that whether the loss will occur or
not or if it occurs, how much will be the loss amount and when will it occur. If
loss doesn’t occur, the client will lose the money and insurer will make profit. If
the car gets stolen, the insured will receive claim Rs. 400, 000/- and will be at
profit while insurer will be at loss.
Due to presence of such uncertainties (Gharrar) and insurance agreement
being a sale and purchase agreement between insured and insurer, Islamic
scholars declare insurance agreement as prohibited.
In takaful, the agreement is that of Taburru in which the members contribute
into the pool fund with the intention that if any defined loss occurs, the
members will be compensated from that fund. Here, no sale and purchase
agreement occurs. Takaful operators only take care of pool fund. They collect
contributions on behalf of the pool fund and pay losses from the pool fund i.e.
not from the own account of the takaful operators.
Now the question arises, same kind of uncertainty also exists in takaful also. If
anyone becomes member of the pool fund by contributing in the pool fund, he
doesn’t know whether loss will occur and if occur then when and what will be
the amount of loss. Answer to this question is simple. Nature of agreement in
takaful is different. It is agreement of Taburru instead of sale and purchase
agreement and so such uncertainty is allowed in takaful. Let me explain the
change in nature of agreement by extending the above mentioned example:
Example:
Let’s go back to the example where an item was offered for sale while it was
kept secret in a close fisted hand. In that example, the item was offered for
sale. Now let’s suppose, if someone is holding the same item in a close fisted
hand and declares that he wants to make it a gift to the person who raises his
hand first and so a person raises hand quickly before others and get that item
which finds out to be a match box. Here, in this transaction, uncertainty
existed that nobody knew what was lying in the close fisted hand but as it was
not offered for a price and was a gift so the agreement didn’t become prohibited
as it was not a sale and purchase agreement.
In the same way, in takaful, the agreement is that of Taburru instead of sale
and purchase, therefore, uncertainty to an extent doesn’t make it prohibited.
GAMBLING: (Maysir):
Making profits at the cost of loss of other party without giving him any product
r service is gambling. For gambling following conditions are required:
1) There must be two parties who gamble with each other
2) Outcome of the events should be beyond their control
3) None of them give any service or product to each other.
For example if two people compete in a race with the following conditions, that
if you surpass me, then I will give you a thousand pounds and if I surpass you
then you will have to give me a thousand pounds. Or if someone says, 'If it
rains today you will have to give me a thousand pounds and if it does not rain
then I will give you a thousand pounds.
When you insure your house, the money you pay is called a “premium”. The
event which neither you nor the insurance company controls is that a fire will
damage your home during the next year. If there's no fire, the insurance
company keeps your premium. If there is a fire, the insurance company pays
you the amount of the damage. This fits the gambling scenario exactly. Buying
insurance is a form of gambling. Insurance companies have worked long and
hard and very successfully to convince us of the opposite. They say that if you
don't have insurance, you're gambling. They talk about protecting us against
fire. But fire is beyond their control; they cannot protect against fire. Perhaps
they talk about protecting us from loss due to fire. But they can't stop the fire
from burning your photos, nor can they limit the damage caused by the fire in
any way. The only thing they can do is pay you money when a fire occurs. You
have made a bet with them; you bet that fire will occur and they bet that it will
not. If it does not occur, you lose the bet, and the premium is your loss; if it
does occur, you win the bet, and they pay you. Perhaps the amount they pay
you is the amount you lost in the fire; that way it feels like they are paying you
back. But the amount they pay you doesn't have to be the same as the amount
you lost in the fire (and if you read the fine print, you see that it often isn't);
you get whatever you and the insurance company have agreed to. Of course, an
insurance company would never call it “making a bet”. They would say that
they want to insure you against loss, but as you will see, they do a good job of
ensuring that you lose.
Riba:
Conventional endowment insurance policies promising a contractuallyguaranteed payment, hence offends the riba prohibition. The element of riba
also exists in the profit of investments used for the payment of policyholders’
claims by the conventional insurance companies. This is because most of the
insurance funds are invested by them in financial instruments such as bonds
and stacks which may contain elements of Riba.
