36
Themes Conventional Insurance Takaful
Payment Premium belongs to the
insurance companies
Contribution belongs to the
participants and TOs, depending on
the Takaful model adopted
Standard-setting
bodies
IAIS, Local standard-setting
bodies
AAOIFI, IFSB, Local standard-setting
bodies
Choice of
investment
No restriction Shari'ah-compliant investment
Risk mitigation
approach
Risk transfer Risk sharing
Method of
managing risks
Risks are transferred from
the insured to the insurer.
Risks are distributed to the whole
group of participants, and the
burden of losses is shared equitably
among them
Surplus from
participant risk
fund
It belongs to the insurance
company
It can be shared depending on the
Takaful models adopted
Profit motive Commercial insurance
companies make profits for
their shareholders by
protecting the policyholders
against risks in return of
fixed premiums
Takaful companies make profits for
their shareholders by managing and
investing the Takaful fund on behalf
of the participants. Takaful coverage
against risks is provided by the
participants on a mutual or
cooperative basis
Profit from
investment
It belongs to the insurance
company only
It can be shared between
participants and TOs according to
the Takaful model adopted
The nature of the
contract
The contract of commercial
insurance is a sale and
purchase of insurance policy
between the insurer and the
insured
Takaful is a contract of ta’awun
which combines the elements of
musharakah and tabarruʿ. The
contract of muʻawadah only relates
to the management of the Takaful
funds
The obligation of
the parties of the
contract
The policyholder is obliged
to pay the premiums while
the insurer is obliged to pay
the compensation to the
policyholder upon the
occurrence of losses
specified in the policy
The participant is obliged to pay the
contributions as a commitment to
provide indemnity to other
participants on a mutual basis while
the TO is obliged to manage and
invest the Takaful contributions
The ownership of
insurance/Takaful
The paid premiums, together
with all the investment
The Takaful contributions, profits
from their investment and the