Whats the difference between Takaful vs Conventional insurance?


#1

According to Takaful Malaysia,

  • Both takaful and conventional insurance provide protection in the event of unforeseen events and
    contributions must be made to start the coverage.

  • Insurance is the transfer of risk by an individual or an
    organisation, i.e. your business, to the insurance company.

  • You or your organisation will thus be known
    as the policy owner. The insurance company receives payment in the form of premium and will
    compensate you in the event of covered losses or damages sustained by you.

  • Takaful provides protection based on Shariah principles.

  • By contributing a sum of money to a common
    takaful fund in the form of contribution (‘Tabarru’), you will undertake a contract (aqad) to become one
    of the participants by agreeing to mutually help each other, should any of the participants suffer a
    defined loss.

  • Both insurance and takaful have similar basic principles. For instance, the insured must have a legitimate
    financial interest in the risk you are insuring, meaning you must suffer a financial loss when the insured
    event occurs.

  • Your insurance or takaful contract is a contract of utmost good faith (trust). Thus, you as
    the certificate owner need to disclose all material information required.

  • If any of the relevant material
    facts are not disclosed, the certificate may be invalid and you will not be protected against any loss or
    damage.