Conceptual Framework of Tafakul and Conventional Insurance. Literature on Takaful has considerably grown during the last three decades. Most of the literature emphasizes on Takaful concept and its difference with conventional insurance is frequently discussed topic. Following are the conceptual differences between Takaful and the conventional insurance:
Takaful operation is based on the concepts of taawun (mutual help or co operation) solidarity, trusteeship, and brotherhood but conventional insurance is based on to take material gain on behalf of other.
In Islamic society Takaful system worked on the basis of Taawun and Tabarru. Participants mutually agree to help and guarantee each other by collecting contribution from individual, for the sake of mutual cooperation. Literally, insurance is worked on risk transferring process under which one protects themselves on behalf of others.
The main purpose of Takaful under the Islamic system is to bring equity to all parties involved, and the objective of the contract is to help the policyholders through bad times. Profit earnings is not the main goal, while sharing any profit generated incidentally is acceptable but in conventional system business is started with the aim to earn profit.
It is an agreement among a group of persons who agree to jointly share responsibility of loss or damage that may inflict upon any of them; out of the fund they donate collectively but in conventional setup loss is indemnified by the insurance company according to the terms and condition of the policy.
Takaful insurance has grown not only as an innovative financial instrument, but also on religious consideration. The contract of takaful provides solidarity in respect of any tragedy in human life and loss to business or property.
The Islamic model of insurance policy is based on the fundamental principle of mutual cooperation and solidarity, as ordained by Allah (SWT) mentioned to this effect in the Holy Quran.
But for conventional insurance there is no any religious boundaries and the purpose of insurance is to protect risk-averse from suffering the full cost of those actions on the part of nature which affect them unfavorably.
In case of any natural disaster, every person used to contribute something until the loss was indemnified. Takaful is basically based on the idea of Aaqilah for the payment of blood money wherein payment was made by the whole tribe. Islam accepted this principle of mutual compensation and joint liability.
Operator is playing the role of fund manager on behalf of the participant. So operator is not undertaking risk, the risk is however, distributed among the participants who agreed to jointly assume the risk.
Under conventional framework Insurance is a contract between two parties, whereby first party agrees to undertake the risk of other party in exchange of premium and the other party promises to pay fixed sum of money to the first party on the happening of uncertain event with in a specific duration.
Joint Guarantee/Taawun
Takaful is conceptually defined as an Islamic financial protection system which involves a joint guarantee scheme in providing possible indemnity or contingency but conventional insurance is based on compensation of loss in exchange of premium which is paid by insured.Takaful operation is based on the concepts of taawun (mutual help or co operation) solidarity, trusteeship, and brotherhood but conventional insurance is based on to take material gain on behalf of other.
In Islamic society Takaful system worked on the basis of Taawun and Tabarru. Participants mutually agree to help and guarantee each other by collecting contribution from individual, for the sake of mutual cooperation. Literally, insurance is worked on risk transferring process under which one protects themselves on behalf of others.
The main purpose of Takaful under the Islamic system is to bring equity to all parties involved, and the objective of the contract is to help the policyholders through bad times. Profit earnings is not the main goal, while sharing any profit generated incidentally is acceptable but in conventional system business is started with the aim to earn profit.
Social Solidarity/ Shared Responsibility
Takaful, the Islamic alternative to conventional insurance is based on the idea of social solidarity, cooperation and joint indemnification of losses of the members.It is an agreement among a group of persons who agree to jointly share responsibility of loss or damage that may inflict upon any of them; out of the fund they donate collectively but in conventional setup loss is indemnified by the insurance company according to the terms and condition of the policy.
Takaful insurance has grown not only as an innovative financial instrument, but also on religious consideration. The contract of takaful provides solidarity in respect of any tragedy in human life and loss to business or property.
The Islamic model of insurance policy is based on the fundamental principle of mutual cooperation and solidarity, as ordained by Allah (SWT) mentioned to this effect in the Holy Quran.
But for conventional insurance there is no any religious boundaries and the purpose of insurance is to protect risk-averse from suffering the full cost of those actions on the part of nature which affect them unfavorably.
Concept of Aaqilah
Takaful is not a modern concept in Islamic commercial law. The current jurists acknowledge that the foundation of shared liability or Takaful was laid down in the system of ‘Aaqilah’, which was an arrangement of mutual help or indemnification customary in some tribes at the time of the Holy Prophet (S.A.W).In case of any natural disaster, every person used to contribute something until the loss was indemnified. Takaful is basically based on the idea of Aaqilah for the payment of blood money wherein payment was made by the whole tribe. Islam accepted this principle of mutual compensation and joint liability.
Risk Distribution
The conceptual difference between Takaful and conventional insurance is that risk in Takaful is not exchanged by way of contribution payments made to operator which means operator is not selling and participant is not buying any risk coverage.Operator is playing the role of fund manager on behalf of the participant. So operator is not undertaking risk, the risk is however, distributed among the participants who agreed to jointly assume the risk.
Under conventional framework Insurance is a contract between two parties, whereby first party agrees to undertake the risk of other party in exchange of premium and the other party promises to pay fixed sum of money to the first party on the happening of uncertain event with in a specific duration.