CONTENTS

Executive summary What is insurance Types of insurance What is takaful Main features of takaful Insurance in the view of Islam Differences b/w takaful and conventional insurance Justification of the differences conclusion

WHAT IS INSURANCE
In insurance, the insurance policy is a contract (generally a standard form contract) between the insurer and the insured, known as the policyholder, which determines the claims which the insurer is legally required to pay. In exchange for payment, known as the premium, the insurer pays for damages to the insured which are caused by covered perils under the policy language. OR The insurance policy is generally an integrated contract, meaning that it includes all forms associated with the agreement between the insured and insurer. OR The insurance contract is a contract whereby the insurer will pay the insured (the person whom benefits would be paid to, or on the behalf of), if certain defined events occur. Subject to the "fortuity principle", the event must be uncertain. The uncertainty can be either as to when the event will happen (i.e. in a life insurance policy, the time of the insured's death is uncertain) or as to if it will happen at all (i.e. in a fire insurance policy, whether or not a fire will occur at all).

TYPES OF INSURANCE:
HEALTH INSURANCE: Accidental death and dismemberment insurance Dental insurance Disability insurance Total permanent disability insurance Income protection insurance Long term care insurance Vision insurance LIFE INSURANCE: Permanent life insurance Term life insurance Universal life insurance Variable universal life insurance Whole life insurance RESIDENTIAL INSURANCE: Contents insurance Earthquake insurance Flood insurance Home insurance Landlords insurance Mortgage insurance Property insurance.

BUSINESS INSURANCE: Bond insurance Directors and officers liability insurance Errors and omissions insurance Fidelity bond Professional indemnity insurance Professional liability insurance Protection and indemnity insurance OTHER: Crime insurance Crop insurance Group insurance Liability insurance Marine insurance No-fault insurance Pet insurance Phone insurance Reinsurance Terrorism insurance Vehicle insurance Wage insurance Weather insurance Workers' compensation

WHAT IS TAKAFUL
Takaful is derived from an Arabic word which means solidarity, whereby a group of participants agree among themselves to support one another jointly against a defined loss. In a Takaful arrangement, the participants contribute a sum of money as wholly or partially tabarru (donation) into a common fund, which will be used mutually to assist the members against a defined loss or damage. OR The term is a (infinitive noun), which is derived from the root word . .. The word ..means guarantee. The word whose chief characteristic is ,means sharing. Thus, the word ( Takaful) means shared responsibility or shared guarantee, responsibility, assurance or surety. Technically, (Takaful) from the economic point of view means mutual guarantee provided by a group of people living in the same society against a defined risk or catastrophe befalling ones life, property or any form of valuable things. Hence, Takaful is better known as cooperative insurance. PARTIES INVOLVED: In Takaful, there are usually four parties involved, namely: participant, operator, insured, and beneficiary. Those who contribute to the mutual fund are known as participants, while those who among the participants face the risk and

are assisted by the fund are known as insured. Those who actually benefit from the fund are known as the beneficiaries to the cooperative fund. The monetary contribution made by the participants to the fund is known as the mutual contribution. The fund is managed by a registered or licensed body or corporation known as Takaful operator. MAIN FEATURES OF TAKAFUL: 1) Takaful has no contact with excessive gharar (al-gharar al-kathir) since the part of installments paid by each participant is considered to be a donation or voluntary contribution that is directed to a special fund. Should an insured accident occur, this fund is used to provide the compensation. In addition to paying the money necessary to cover the sum of the damage the participant can be sure he will be paid the income from the other part of installments on basis of the PLS (profit and loss sharing) system regardless of occurrence of insurance accident. The operator is aware of the amount of his share that the terms of a contract provide a certain amount of the share agreed upon by the parties to a contract. The amount of income depends exclusively on the operations carried out by insurance company and does not appear to be a fixed interest that does not depend on income. Life, health and property of a man is believed to be in the possession of Allah, so it is quite natural from the point of Islam that there is uncertainty about what is going to happen to them "Verily the knowledge of the Hour is with Allah (alone). It is He who sends down rain, and He Who knows what is in the wombs. Nor does any one know what it is that he will earn on the morrow" (surat Lukman, 34); 2) The installments or a part of them paid by the participant can be used in operations on condition that those operations do not contradict with Shariah. In case an operation of a takaful company contains the elements, prohibited under Shariah it will be acknowledged void and null. Articles and memorandum of agreement of every takaful company provide that investment activity of a company is to be in compliance with Shariah principles; 3) The main purpose of Islamic insurance is to guarantee or cover participants risks. Parties to a contract of Islamic insurance (takaful) can be either a warrantor

or a warrantee; 4) Takaful business is based on a very special mechanism of profit and loss sharing called mudarhabah. This mechanism helps to avoid the element of riba as it is, which is inherent to conventional insurance; 5) Shariah Supervisory Board is to supervise business activity of takaful companies. The main goal of Shariah Supervisory Board is to decide whether companys new products and operations comply with Shariah or not; 6) All parties to a contract must conduct in accordance to the utmost good faith principle; 7) Insurers are entitled to offer their representatives for positions in the Board of Directors; 8) Takaful unlike conventional insurance prevents from violating the terms of inheritance prescribed by Shariah.

INSURANCE IN THE VIEW OF ISLAM

Insurance of ones life or possessions is haraam and is not permitted, because it involves gharar (buying/selling something where it is not known whether what is being bought/sold will actually be achieved/delivered, or in what specific quantity, thus putting ones money at undue risk to being lost) and riba (usury, interest). Allah has forbidden all transactions that are based on riba, and all transactions which involve deceit, as a mercy to this ummah, and to protect them from that which may harm them. Allah says (interpretation of the meaning): where as Allah has permitted trading and forbidden Ribaa *al-Baqarah 2:275] And it was narrated in a saheeh report that the Prophet (peace and blessings of Allah be upon him) forbade deceit. And Allah is the source of strength. If what is meant by submitting your papers to the insurance company is that you have health insurance, or intend to take out health insurance, you should note that this insurance is haraam, as is so-called life insurance, because the insurance policy in both cases involves ambiguity and a kind of gambling. This has been

stated by the scholars in their fatwas.

It is not permissible for the Muslim to insure himself against sickness, whether that is in a Muslim country or in a kaafir country, because that involves ambiguity and a kind of gambling. It is known that the one who pays insurance is losing in all cases, and the insurance company may win or lose, because if the accident is very serious and costs more than the money paid by the customer, the company will lose, but if it is minor and costs less than the money paid by the customer, or if no accident happens at all, then the company will win and the customer will lose. Life insurance is not permissible, because if the angel of death comes to the one whose life is insured, he cannot refer him to the insurance company. So this is a mistake and foolish misguidance, and it involves depending on this company instead of Allah, because the person is depending on the company, if he dies, to take care of his heirs, which means depending on someone other than Allah.

DIFFERENCES B/W CONVENTIONAL INSURANCE AND TAKAFUL

ISSUES

TAKAFUL

INSURANCE

The account is known as al- The account is known as general Tabarru, Accounts which means insurance account and life

donation, the other one is insurance account of fund treated in line with the principle of al-Mudharabah

Specificies from the outset May offer bonus or profit in how the profits from general terms only especially with

Takaful investments are to profit policies, there is no exact be shared between the specification with regard to the operator participants and the profit-sharing in contract It may also decide to give or not to

Based on principles of al- give bonus for any particular year Bonus Mudharabah, the ratio depending on the result of the

could be 5:5 or 6:4 or 7:3 as investment returns. The rate of agreed participant operator Participants own between and the bonus can vary from year to year the up to the discretion of the Board of Directors of the company the Insurance is a buy-sale contract. In

Takaful funds and managed which policies are sold and the by the operator. policy holders are the purchasers give up

Participants Contract

individual rights to gain collective rights over

contribution and benefits

Company is better known Relationship

between

the

as operator, which acts as company and the policy-holders is trustee, manager and also on one to one basis Company entrepreneur

Capacity

The minimum age for a The minimum age for a person to person to hold a Takaful buy a poliy is 16 years, but an certificate is 15 years and infant between the age of 10 and infant below 15 should also 16 may also have the right to have have the right to be insured it under respective guardian under the supervision of respective guardian

Elements

Takaful practices are free Insurance practices involve Riba from the elements of Riba (interest) and other and some other

unIslamic elements, which may not be

elements, but is evolved justified by the Shariah principles around the elements of alMudharabah, al-Tabarru

and other Syariah justified elements

A fetus may also have the So far there is no provision right to be insured on the providing an insurance coverage name of the respective for the fetus Fetus mother for ones health protection The paid-premiums of the The paid-premiums of the policyparticipant can for no holders may sometimes be

reason be forfeited, even forfeited, especially for the breach for a breach of utmost good of utmost good faith Forfeiture faith or any other offence or wrong committed by the participant The funds shall be invested The funds may also be invested in Investments in any interest free from an interest-based scheme Shariah justified scheme They can also be invested in any

The entire procedure shall scheme or project, whish may not comply the guidelines of be supported by the Shariah the Shariah Investment returns must not be driven by any discipline

unethical activities

commercial

The entire operation aims The operation aims a commercial at Nature paving the way of gain on the basis of the principles

brotherhood, solidarity and of business mutual cooperation

Regulations

affecting Insurance law is based on the

Takaful are based on the human thoughts and cultures Divine sanction (Quran and Regulations Hadith) The nominee in a life The nominee in a life policy is Takaful policy should not be treated as an absolute beneficiary treated as an absolute over the policy No other person shall have the right to claim all or part of the benefits nominee disbursed to that

beneficiary, but a mere Nomination trustee or an executor who is under a responsibility to receive the benefits over the policy and distribute them among the right

beneficiaries according to the principles of Faraid

Fixed minimum premium, Premiums paid by the policywhich is the same for all holder are various. It depends on participants of all ages Premiums the age when the policy-holder first takes out his policy. The older the policy-holder is, the higher the level of premium would be Under Takaful policy, the Under a life insurance policy, if it is cause of death of the proven that the policy-holder has participant is immaterial Suicide The beneficiary shall have the right to claim legitimate benefits from the operator regardless of whether the death of the participant is caused by natural, suicide or being killed while committed suicide within first two (2) years of the policy with an intention of leaving benefits to his beneficiaries, no right of claim shall be entertained

committing a crime

Conclusion:As we analyzed differences between takaful and conventional insurance, we found contradiction between two views. We met two muftis and asked about the insurance one of them said that insurance is totally hraam because insurance companies are investing in the business that include riba.And he also said life insurance is hraam because in this we depend on the insurance company instead of ALLAH. And the other said that takaful is not hraam because Islamic insurance companies are investing in the Riba free business which follows the principles of shariah.

Executive summary:We, a group of five girls visited Pak Qatar takaful, United insurance company, and EFU life insurance company for verifying differences between conventional insurance and takaful that exist in market.there we met Muhammad Tariq, Muhammad Farooq, Riaz Shah and Arshad Gujjar and collect data about our topic.