What is Takaful
The Takaful Insurance is based on the principle of cooperative and the principle of separation between the funds of shareholders and the funds of company participants (Takaful contributions).
How General Takaful Works
Takaful refers to the Islamic insurance where you committed to make donation which will be a contribution of sum of money to a Takaful fund. This will be agreement among the participants to mutually help each other against facing specific risks and suffering any form of misfortune, either arising from death, permanent disability, loss, damage or any other such misfortunes.
The contributions collected from the participants (policyholders) are considered as donations and it will constitute the Takaful fund from which all claims are reimbursed.
At the end of each financial year, after deduction of the expenses, any remaining cash surplus (if any) in the Takaful Fund could be distributed to the participants (policyholders) in the form of cash dividends or it could be returned to the Takaful Fund.
In this respect, Takaful business is different from the conventional insurance in which the participants (policyholders) benefit from the surplus of the Takaful Funds (if any) and the return generated from Investment assets.
The investment assets of the Takaful Funds represent the reserves and retained earning which are managed by the company management against pre-agreed fee.
The model of Wakala (agency) is being used to issue the Takaful policy and manage it. While the model of Mudaraba (Joint Venture) is being used to Manage the investments.
The operational framework of Takaful avoids elements of Riba (interest or usury) and Gharar (unknown or ambiguous factor in the contract) and another factors that are considered to be against the Shari’a rules and principles.
If there is a deficiency in the Takaful Fund, the Shareholders Fund may give a Qard Hasan (interest free loan) to the Takaful Fund to cover deficit.