For instance, major prohibited elements which include uncertainty. Similar to conventional composite insurance companies, takaful operators offer both general takaful and family takaful products. Takaful, as a form of insurance, is entering a fast growing global market, promoted by the growth of the asian economies and economic prosperity in. Those who are in agreement with the present insurance and find nothing wrong in it. Insurance or takaful is a mechanism to help the ummah solve some of the social economic. An analysis of conventional insurance and takaful insurance. The true difference between takaful and insurance practical. An insurance contract minimizes the risk of loss due to accident or illfated situation. Analysis of demand for family takaful and life insurance. Dec 30, 2015 the takaful sector has grown tremendously since 1979 with takaful now covering the full spectrum of personal and commercial insurance products.
Arabia follows a cooperative insurance model called islamic insurance takaful, which is an islamic or. Conventional insurance involves the elements of excessive uncertainty gharar in the contract of insurance. Before the formation of insurance rules in 2005, pakistani insurance sector had only conventional insurance firms. The global takaful insurance market charting the road. Reciprocals, hybrid mutual insurers, and takaful 67. Takaful therefore is the practice whereby individuals in the community jointly guarantee themselves against loss or damage see the publications of securities. Part vi concludes by evaluating the realistic potential for harmonisation of these core takaful principles amongst the worlds takaful elite. Islamic finance refers to the application of shariah or islamic law to financial and. Describe the various types of insurance and takaful schemes 2. An innovative approach to insurance and islamic finance.
Then, the commission of suicide or any other crime by the policy holder in takaful insurance may not be a ground for the operator to deny the liabilities. Takaful meaning is providing guarantee in an islamic way. Between conventional insurance and takaful megainsights. Insurance is a very important topic mba, bcom,mcom and other finance related degrees. Rakaan kayali 16 comments takaful is a relatively new insurance product that is marketed as an islamic alternative to conventional insurance and is often referred to as islamic insurance. In terms of paying for a conventional insurance premium versus a takaful based motor insurance, the total payment donation would be identical or approximately the same. January 2007 catherine staggmacey senior analyst, celent, united kingdom an overview of islamic insurance conventional insurance involves the elements of uncertainty, gambling and interest, all of which are unacceptable under islamic law. Having progressed from late 1970s following the rise of islamic banking and finance, it has established quite well. This paper will begin with an exploration of the underpinnings of the modern islamic financial system with regards to its impact on takaful. Insurance pdf types of insurance, scope of insurance. Difference between takaful and conventional insurance. Takaful is the islamic alternative to conventional insurance which is based on the idea of social solidarity, cooperation and joint indemnification of losses of the members.
Therefore, this study attempts to fill the gap by comparatively analyzing the financial performance between takaful and conventional insurance in bahrain during 20062011 using financial ratios for insurance compamies in terms of liquidity, solvency. Comparison between takaful and conventional insurance. Prohibitions of islamic law against conventional insurance. Takaful and conventional insurance at first glance may look similar, but. In arabic, takaful means solidarity and cooperation among group of people. General takaful is an alternative for general insurance, while family takaful is alternative for life insurance. Opportunities, challenges, and policy options, imf staff discussion note april 2015.
Jun 09, 2017 takaful islamic insurance vs conventional insurance 1. Takaful, the islamic alternative to conventional insurance is based on the idea of social solidarity, cooperation and joint indemnification of losses of the members. Conventional insurance companies do not necessarily have re insurance with reinsurance companies that are shariah compliant. On takaful companies, any surplus in the takaful fund is shared among participants only, and the investment profits are distributed among participants and shareholders on the basis of mudaraba or wakala models. A study on takaful and conventional insurance preferences. Topic 6 insurance and takaful insurance life insurance. The true difference between takaful and insurance date. Discretionary or hybrid mutuals 69 takaful 71 takaful models 75 conclusion 80 notes 80 references 80.
General takaful offers all kinds of nonlife risk coverage, and family takaful is for dangers related with human life like demise, islamic accounting objectives of islamic accounting are different from those of conventional accounting. It is a cooperative institution according to the principles of contract which is mutual cooperation taawun. Compare the differences between conventional insurance and takaful 4. Descriptive statistics andanova analysis are applied on the data to find out the performance of insurance companies.
Swartz 1 and pieter coetzer 2 1 unit for legal historical research, departm ent of roman law, legal history com parative law, faculty of law, ufs. It is an agreement among a group of persons who agree to. Guaranteeing each other shariah compliant alternative to conventional reinsurance can be thought of as a mutual reinsurer within a shareholder wrapper or a reciprocal pwc based on solidarity, cooperation and mutuality products are broadly similar to conventional reinsurance. This is an exploratory comparative study which provides a base for an understanding of takaful with a comparison to conventional insurance. Concepts and models by atiquzzafar khan iiie, iiui may 31, 2011 th distance learning course on islamic finance.
Takaful is the islamic alternative to conventional insurance which is based on the idea of social solidarity, cooperation. Middle east insurance forum in early february as being one of the key factors driving an overconcentration in the property sector. A comparative study of takaful and conventional insurance. A comparative analysis on the financial performance. In takaful insurance the nominee in the policy is a mere trustee while in conventional insurance the nominee of the policy has an absolute insurable interest over the policy. The key difference between takaful and conventional insurance rests in the way the risk is assessed and handled, as well as how the takaful fund is managed. Moreover, when a person is purchasing an insurance policy, the. Oct 20, 2014 the key difference between takaful and conventional insurance rests in the way the risk is assessed and handled, as well as how the takaful fund is managed. Islamic insurance takaful, which is an islamic or shariahcompliant. Takaful same but different kpmg south africa kpmg international. It can also inform market decisions and public policy with respect to. Unlike conventional insurance where the primary motive is to generate profit for the benefit of the shareholders, in takaful, the. A comparative study of general takaful and conventional. Conventional insurance typically charges a fixed commission fee of 2% whereas takaful operators might impose a wakalah charge depending on the product and model.
Differences between takaful and conventional insurance. The word takfual originates from the arabic word kafala, means guarantee. Takaful is a type of islamic insurance, where members contribute money into a pool system in order to guarantee each other against loss or damage. The policyholders are grouped in a mutual assistance contract. Elaborate on the difference between basic policies and riders 3. There are different types of insurance policies but the one known in islam is takaful or shariah insurance.
With takaful functioning as an alternative counterpart to conventional insurance, solutions will be drawn up for many problems. Pdf a comparative study of takaful and conventional insurance. Financial regulations for takaful insurance companies page 7 of 118 insurance authority board decision number 26 of 2014 pertinent to financial regulations for takaful insurance companies chairman of insurance authority having considered. Financial regulations for takaful insurance companies. The existing intense competition amongst takaful product providers, on some of the high risk insurance markets such as auto and medical insurance, is causing harm to the natural growth of the industry and risks the integrity of the impetus of the shariaacompliance element in the takaful business altogether. Pdf the purpose of this paper is to distinguish between the performance levels of the malaysian takaful and.
Concept, challenges, and opportunities 2 safder jaffer, farzana ismail, jabran noor, lindsay unwin november 2010 executive summary through desktop research, one can get a plethora of materials and papers on takaful, but most tend to focus either on the fundamentals of takaful or on takaful models. Takaful insurance companies are based on mutualcorporation while conventional insurance companies are based solely on commercial factors. Ahmad ali khan, 2003 it is a business institutions operated upon the principles of contract which is exchange. Takaful is another name of islamic insurance that allows the premiums received from insured to be pooled into a fund to support each other in case someone gets any damage. The literature on takaful emphasizes on its idea and its dissimilarity with the conventional insurance. Among the top regulatory issues facing insurance and takaful. The rows highlighted in grey refer to takaful firms. The conventional insurance contract binds the insured to pay certain number of premiums otherwise the paid premiums are forfeited. Islamic insurance is introduced as alternative to conventional insurance as there are many elements prohibited in islam in conventional insurance e. Takaful being an islamic alternative to conventional insurance is well known now.
Most muslims avoid in conventional insurance products and. Similarities of takaful and conventional insurance. Takaful is an arabic term meaning solidarity, which is used to describe a system of islamic insurance that functions as an alternative to conventional insurance. Dec 25, 2017 takaful is another name of islamic insurance that allows the premiums received from insured to be pooled into a fund to support each other in case someone gets any damage. Those who accept the concept of insurance, but find prohibited elements in its present practice. Dec 16, 20 takaful companies have re insurance with re takaful companies or with conventional re insurance companies that adhere to certain conditions of shariah. Differences between takaful and conventional insurance takaful, the islamic alternative to conventional insurance is based on the idea of social solidarity, cooperation and joint indemnification of losses of the members. Since then, takaful industry entered the ground and now. In arabic, takaful means guaranteeing each other and so, takaful insurance is an islamic insurance theory that is compliant with islamic law sharia and is a mutual risk transfer arrangement which involves operators. It is an islamic form of financial protection, similar to conventional insurance, and it has been. Insurance pdf types of insurance, scope of insurance,classification hello friends welcome to. Insurance and takaful schemes 2 learning outcomes at the end of the topic, students should be able to, 1. Introduction a broad spectrum of conventional insurance products is available to mitigate whether such products are generally offlimits as it is involve in transactions or activities that sharia islamic law prohibits.
Further differences are also present in the relationship between the operator under conventional insurance using the term. Jan 10, 2012 in takaful insurance the nominee in the policy is a mere trustee while in conventional insurance the nominee of the policy has an absolute insurable interest over the policy. A comparative analysis on the financial performance between. The takaful sector has grown tremendously since 1979 with takaful now covering the full spectrum of personal and commercial insurance products. Unlike conventional insurance where the primary motive is to generate profit for the benefit of the shareholders, in takaful, the business is conducted for the benefit of the. As an example, a conventional calculation by tokio marine and a takaful calculation by takaful ikhlas on a sum insured of rm50,000 both totaled approximately rm763.
Comparative performance of islamic and conventional. Takaful insurance is a form of cooperative insurance in compliance with islamic shariah, which is based on the concept of shared contributions and mutual cooperation between the participants to compensate one another in case of loss. The overall result shows that islamic insurance companies perform. Growth opportunities in a dynamic market insurance takaful contributions are forecast to grow roughly sixfold over the next decade overview takaful is based on solidarity and risksharing principles. Jan 22, 2020 takaful is a type of islamic insurance, where members contribute money into a pool system in order to guarantee each other against loss or damage. Next, the paper will lay the foundations and forms of. How does takaful compare to conventional insurance. It can also inform market decisions and public policy with respect to the. Takaful islamic insurance vs conventional insurance. This study focuses on family takaful and life insurance which operate on a long term basis with. Having said that, there are major differences in the workings of the two systems, stemming from the fact that takaful adheres strictly to the islamic principles it was developed upon. Zainal abidin mohd kassim, hassan scott odierno, and sabbir patel. Advantages of takaful over the conventional insurance.
Aug 21, 2015 with takaful functioning as an alternative counterpart to conventional insurance, solutions will be drawn up for many problems. Key differences in takaful and conventional insurance. Takaful is the islamic alternative to conventional insurance which is based on the idea of social solidarity. And also it tries mainly to clear a common doubt among public masses that the conventional insurance and. Jun 04, 2016 the key difference between takaful and conventional insurance rests in the way the risk is assessed and handled, as well as how the takaful fund is managed. Takaful islamic insurance vs conventional insurance 1.