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2.3. Comparison of Takaful with Conventional Insurance
This section presents a comparative analysis of the Takaful insurance in comparison with
conventional insurance, emphasising on the concepts, features and nature of risks. The concept
of Takaful is quite like cooperative insurance (called ta’min ta’awuni) where the participants
mutually agree to help one another. The participants undertake to contribute a certain amount
of money as tabarruʻ (donation) to the Takaful fund, and they are also entitled to receive Takaful
benefits payable from the fund on the occurrence of certain events covered under the scheme.
Therefore, under a Takaful arrangement, the Takaful participants play in the same time the roles
of insured (policyholders) and the insurer ( Takaful benefits provider). Unlike the conventional
insurance companies which undertake to provide compensation to the policyholders, the TO’s
duty is only to manage the Takaful fund and administer Takaful certificates (policies)
adequately.
Thus, the main features of Takaful can be summarised as follows:
 Policyholders ( Takaful participants) jointly protect their common interest.
 The participants pay their contributions to assist those of them who need assistance.
 The payment of Takaful contributions is made based on tabarru’ to share the burden of
losses and spread liability as per the community pooling system.
 Based on the contract of tabarru’, the element of uncertainty in the payment of
contribution and compensation is tolerated.
 Takaful is not aimed at taking the advantage at the cost of others.
 The Takaful company is not an insurer which is obliged to pay indemnification or
Takaful benefits to the participants, but it is only a manager or administrator
responsible for managing the fund and administering its operations.
As discussed above, there are debatable issues among Muslim jurists about the concept of
insurance. This makes a case for the need to examine the differences between Takaful and
conventional insurance based on a number of themes below provides a snapshot of the
differences between Takaful and conventional insurance.
TABLE 3: TAKAFUL VS CONVENTIONAL INSURANCE
Themes Conventional Insurance Takaful
Concept Based on the Contract of
Bottomry
Based on Aqilah
Principle The Contract of Bottomry
was founded on interest
Aqilah was practised based on
cooperation among the tribes
Contractual
relationship
 Interest-based contract
 Bilateral contract
 Shari'ah -compliant Takaful
models
 Multilateral contract
Motive Profit based Mutual help and tabarru’