is takaful insurance halal

Specialising in community engagement and digital product growth Nebras has over 15 years experience in designing and delivering executable audience growth and content strategies across a range of leading industries and countries. What is Takaful insurance? | Finance Expert Gharar But let us imagine the modern day, where big data and historical statistics allow us to model very accurately what the average catch will be. What's on Is Life Insurance Halal - All Insurance FAQ Riba is an increase added on the exchange of money for money transactions usually at a later date. All human activities are subject to risk of loss from unforeseen events. (Be sure to check the follow-up article on Is life insurance haram or halal). So the stocks and shares analogy makes no sense for insurance. Takaful roughly translates into English as solidarity. Takaful Insurance Explained - GetInsurance Insurance companies make money by pooling together a large amount of money from thousands of policyholders. They bring three fundamental points to argue their claim: Conventional insurance companies are non shariah-compliant businesses. Al-Bukhari and Muslim record the Messenger of Allah (PBUH) has allowed bay al-araya in quantities less than five awsaq (equivalent to approximately 653kg), meaning the sale of fresh dates on the palm in exchange for aged dried dates. If this point is conceded, then really there are few substantive other differences between the two models. So some Muslim scholars in the UK have allowed third-party car insurance under dharoorah (necessity). I like the cooperative model. So the point Im driving at is, the takaful industry has already compromised somewhat on the pure blood money setup for practicality purposes, and in so doing made itself near identical with a conventional insurer. But to answer this question, we need to examine the other concepts involved. The monthly premium installments you paid for your insurance policy adds to the revenue of the insurance company. Please share this page with your friends and family so they can also learn about is insurance halal or haram in Islam. Secondly, if we go back to the blood money situation from which takaful is often analogised with the money wasnt actually pooled and then invested by the tribe. However, it is more general thanthe concept of qimar, which directly relates to games of chance. There are, then, independent positive arguments for why conventional insurance is beneficial and customary enough to fall among such categories and not the one of prohibited gharar. The birth of Takaful insurance began with the Islamic financial system revolution in the Middle East. 'If insurance is compulsory and cannot be avoided, the one who is forced to buy it is excused. The argument against conventional insurance goes that this is a gharar-based transaction where something uncertain is being bought in exchange for a premium so is not allowed. Moreover, any kind of insurance policy that complies with the takaful principles is also deemed to be permissible. It is derived from the hadiths rather than the Koran. This is out of necessity (dharoorah). Accessed July 7, 2021. Relating to this, fuqaha allow takaful insurance which is a form of cooperative insurance along these lines. An Appraisal Of Laws Regulating Takaful Insurance In Nigeria Takaful Insurance Market Statistics, Segment, Trends and Forecast to We think it's important you understand the strengths and limitations of IFG. But interestingly, they were doing terribly until they became increasingly corporatized and commercialised, and now theyre running pretty effectively. If you decide to invest, read our important investment notes first and remember that yields are variable, investments can go up and down in value, and you could get back less than you put in. Photo: Jose Luis Pelaez Inc / Getty Images Definition and Examples of Takaful However, when you buy the shares of the company. Similarly an insurer contracts to have available people to speak to you, provide you with documents should you need them, and to do checks whenever you claim. Takaful is a halal alternative to conventional insurance. So in conclusion: For discussions sake even if we accept the analogy that there is no element of Qimar (gambling) in insurance contracts. Whole life insurance is permanent life insurance that pays a benefit upon the death of the insured and is characterized by level premiums and a savings component. So, the guy who pays his fellow tribesman a contribution for the blood money due is doing it not as a bilateral contract but as a gift out of the goodness of his heart. We also reference original research from other reputable publishers where appropriate. It is Allah who protects our houses and families from any harm, not insurance companies. Takaful providers insist that the overall cost of a life policy under this structure is cheaper than conventional insurance. If you are interested in investing in takaful then simply call us, our agent will guide you step by step about the whole process. In this article I will focus on the strongest and most central of these objections: gharar. Namely, insurance implies some form of usury (riba), uncertainty (gharar), and gambling (maysir). There is no specific investment guidelines for takaful operators. Takaful policies cover health, life, and general insurance needs. The True Difference Between Takaful and Insurance The difference is only in the structuring. Then later we will also look at the Islamic takaful insurance model. Basically, whoever invented Takaful 30 or 40 years ago, took conventional insurance infused it with Al-Gharar and then called the product "Islamic"! Disclaimer: You may have individual circumstances which may make insurance halal for you based on necessity. Takaful/Islamic Insurance - General Takaful However, scholars on the other side debated this analogy as baseless and non-nonsensical. Life insurance is a contract in which an insurer, in exchange for a premium, guarantees payment to an insureds beneficiaries when the insured dies. Riba in Arabic means interest or usury. As a general rule, conventional insurance is haram (prohibited) in Islam unless it is out of dharoorah (necessity). What are Sustainable Development Goals (SDGs), and as a Muslim, Why Should I Care? A Non Biased View. So the contract for investment in a company is different to a contract of an insurance policy. Whether that be life insurance, car, health, home or even commercial insurance. Nebrass strategies are always focused on return on investments, customer retention and high brand value. We will deal with these concepts first before moving onto takaful, an Islamic concept that is used much more in the argument for insurance being halal. - Read This First! Takaful insurance There is no single Islamic insurance called Takaful (joint insurance) in many countries. In this way, takaful is very much a kind of insurance that is halal under Islamic law. Takaful can also be said the Islamic alternative to insurance. Let us label this the positive argument. Whether that be life insurance, car, health, home or even commercial insurance. The global Takaful Insurance Market is presently valued at USD 24.85 billion and is poised to amplify at a CAGR of 14.6% over 2022-2030, thereby amassing a valuation of USD 97.17 billion by end of the assessment timeframe. But that is not practicable these days in a non-tribal and atomistic society. More on this later, but remember: the basic principle of mitigating loss by pooling wealth is uncontroversially halal. The trickier question is, do consumers enjoy the same level of certainty? But let us label this the negative argument. How is Takaful different from other insurance? - Prudential plc Lets analyze if this analogy of insurance being like buying stocks and shares actually has any merit from an Islamic perspective: Buying stocks and shares on the share market for a halal company is permissible in Islam. Why not share this news? Any claims made by participants are paid out of the takaful fund. Allah in His last and final revelation has prohibited such practices of consuming peoples wealth unjustly. The basic concept is that a bunch of people pool their money together not-for-profit to mutually cover each others backs. Takaful insurance covers various products such as life takaful, motor takaful, health takafuletc. takaful insurance, then one struggles to pinpoint how exactly these deemed-halal examples are different to conventional insurance which is deemed haram. What is difference between Takaful and insurance? - InsuredAndMore.com But you had no accident so you did not make a claim during the year of your insurance policy. Takaful - Wikipedia But if it is not compulsory then it is not permissible to buy it, so long as it is a type of commercial insurance, because it is a kind of gambling which is forbidden.' There is a form of insurance that claims to be halal; it is known as Takaful. (CrescentWealth), Blog Well, much of the opinions I hold on Islamic Financial matters are the mainstream ones, but as I have studied the topic of insurance more, I have increasingly found myself switching position. On top of that as a Muslim having a will is super important so that your inheritance is separated up the Islamic way. "Compliant" (legal) health insurance must take into account the prohibition of interest and betting in Islam and be based on a community of insured not only sharing the risks but also the profits of the insurance company. In Australia, insurance is a normal part of life for many. Someone who is taking out an insurance policy is not doing it with the intention of an investment in the insurance business. Here is a collection (which we will be adding to) of excellent Coronavirus resources we have come across related to personal Credit cards are prevalent and widely used by many Muslims today but are they haram or halal? For example, the group may pay to have a members house rebuilt if destroyed in a fire. People face hardships and loss or damage in their lifetime or they might need a huge amount of money in an emergency or they need money to pay for the education or wedding of their children. Here you would fall into interest (Riba), uncertainty (Gharar) and gambling (Qimar). Relating to this, fuqaha allow takaful insurance - which is a form of cooperative insurance along these lines. Then they aggressively invest this money into bonds, interest-based banking and profitable ventures. What is Takaful? The debate is on how it is done, i.e. However please do note that this article is merely a summary of the topic and my views; a fuller treatment would extend into the tens of thousands of words. Is Life Insurance Halal In Islam - islamisthetruth.org One is donating with the expectation that the takaful pool will pay out in the case the donor needs it. Whether that be health insurance, car, life, travel, or home insurance. The one who gives interest and the one who receives interest are both at war with Allah and His Messenger. Is Insurance Halal or Haram? A Non Biased View - Crescent Wealth Super Some scholars have allowed insurance in certain circumstances. Takaful (Islamic Insurance) May 10, 2022 Insurancepe. Then he/she would never waste their money towards an insurance policy. Islam also has its own version of insurance known as takaful which we will discuss later. Many Islamic scholars have debated this question, and many Australian Muslims have wondered how the question relates to their own lives. My argument is that conventional insurance is not such a contract as it is sufficiently clear. It looks like him standing around waiting for the one day in the year when he needs to earn his keep. (Life, Health, Home, Travel etc. In the UK it is against the law to drive without minimum third-party car insurance. This is the essence of gambling where chance dictates who wins and loses. Takaful is a halal Islamic alternative to insurance. Therefore, many financial institutions may well offer insurance products that are, in fact, haram. [Sahih Muslim Book 21, Hadith 8 Graded Authentic (Sahih)]. In this situation, I dont see a problem for Tesco, say, entering a year-long contract with a fishing company, to provide it whatever it catches, with the understanding that on average, x amount is what is expected. Similarly, in insurance, certainly from an insurance companys perspective big data allows a lot of certainty as to where they stand. The Prophet specifically allowed for bai salam (for farmers to sell in advance their crop so that they may raise money now) as it genuinely helped people live their lives in a more stress-free way (see hadith 9 above). All evidence provided is from the Quran and authentic (sahih) hadith. First lets understand what insurance is and how insurance companies make money. Takaful Insurance - Islamic Banking - FNB In the case of (7) this helped ease business in Arabia where the primary agriculture was in dates, while in the case of (8) a debt was allowed to be paid back slightly more or less. Allah strictly forbids us Muslims from interest/usury. You could pay insurance premiums for months/years but in the end get nothing. Life insurance is considered to be an important financial planning tool, aimed at providing protection for the family and children of the deceased. Is Insurance Haram/Halal? (Life, Health, Home, Travel) - Muslimversity The Prophet (peace be upon him) did not say that if both the seller and buyer are okay if one loses at the gain of the other then Gharar contracts are halal. And Allah the Most Knowledgeable and Ever Wise knows best. For customers, I would say: stay away from Takaful and use conventional insurance instead. The benefits of takaful vs insurance is that takaful does not contain haram non sharia compliant elements. But this is an exception and not a general ruling for all insurance to be halal. It must operate according to Islamic cooperative principles. "Takaful" is an infinitive noun which is derived from the Arabic root verb kalaf' or kafala which means to guarantee or bear responsibility. Interest in conventional insurance policies is that the policyholder pays monthly premiums. It depends on the type of insurance being used and a greater understanding of the financial structure of insurance. Allah the Exalted says in the Holy Quran: O you who have believed, indeed, intoxicants, gambling, (sacrificing on) stone altars (to other than Allah), and divining arrows are but defilement from the work of Satan, so avoid it that you may be successful. Just like in betting, gambling or the lottery. Secondly, the harm of allowing outweighs the benefit of allowing, so the conclusion is not to allow. Takaful is the Islamic counterpart of conventional insurance, and exists in both life (or "family") and general forms. Riba al-Fadl (Riba of increased amount) and Riba al-Naseeyah (Riba of delayed time). He added that Halal Takaful has all it takes to cover motor and general insurance business in line with Islamic ethics. Conventional insuranceis considered a form of gambling. In takaful insurance, members contribute their money to a pool system that can be used in the loss or damage. Ali AlKhafeef, and Nejatullah Siddiqi. Your email address will not be published. Rather they are doing it with the intention and contractual agreement of getting a payout if they suffer a loss. So, we will return to this shortly. This is usually paid on monthly installments. Their calculation models predict how many people will make a claim on their policies. CometInsure - All Rights Reserved - 2021. Maysir translates into the English concept of gambling. Nor is there a fair profit and loss share. Any claims made by participants are paid out of the takaful fund and any remaining surpluses, after making provisions for the likely cost of future claims and other reserves, belong to the participants in the fundnot the takafuloperator. How does it work? For example, in his book Islamic Finance for Dummies (2012), Muslim scholar Faleel Jamaldeen defines Maysir as the acquisition of wealth by chance (not by effort). So in a way, it was a purer form of hiba as there was no quasi-contract between tribesmen. Its simply the nature of business to go up or down. Gharar in Arabic means uncertainty. I heard Allahs Messenger (peace be upon him) saying, The reward of deeds depends upon the intentions. In conventional insurance, the insured substitutes certainty for uncertainty. Traditionally in Arabia if a tribesman needed to pay blood money (a large sum) to someone, then the entire tribe would chip in a small amount to make up the sum. Insurance companies strategically diversify their risks. An example of an insurance policy that you did not purchase is a free health insurance policy that your company may provide. They did this as a charitable gesture so no one of their number would be overcome by the massive payment. Islam forbids transactions in which there is gharar. Members in the takaful group contribute money to the takaful fund to guarantee each other against any future loss or damage. Third-party car insurance becomes halal out of necessity. In business partnerships, two or more parties come together and they all take a risk in the business to share the risk and reward. Investment in the stock market and taking out an insurance policy are two very different transactions. Is insurance halal or haram? | Islam.com - The Islamic community news As a general rule, conventional life insurance is haram in Islam because conventional insurance consists of haram non-sharia complaint elements of: There are two types of life insurance and both are haram: Health insurance is haram in Islam because it involves uncertainty, gambling and interest. They are haram businesses that make money from interest (riba) and gharar (uncertainty). Absence of takaful . [Quran 5:90]. For more details please refer to the section on is conventional insurance halal. An appraisal of laws regulating Takaful Insurance in Nigeria The answer to this question is, as is so often the case, It depends. The term Takaful also refers to the concept of Islamic insurance based on mutual cooperation, where both risks and funds are shared between the insured and insurer. To expect someone to handle all this without a profit motive is highly optimistic. This article offers a balanced and fact-driven analysis of whether insurance is halal or haram. Did you find this helpful? Takaful can also be said the Islamic alternative to insurance. They can go up in a few years or even down and you can lose some or all of your investment. And just like buying shares in a company you could lose all your money if the company goes bankrupt or gain huge profits if it excels. ABN 32 144 560 172 Insurance: Is it Haram or Halal? - Islamic Finance Guru Conventional insuranceincludes an element of, Conventional insurance isbased on the conceptand practice of charginginterest. Both organisations aim to make a surplus, pay their employees and managers, pool participant cash and then pay out in the cash of a claim. Besides reinvesting policyholder premiums into interest based assets. The degree of compatibility of such insurance with Islamic traditions was discussed by scholars in various conferences on insurance (Damascus, Makkah, Jeddah, Cairo, Khartoum). The benefits of insurance are many but there are also disadvantages. Those fundsmay be distributed to the participants as cash dividends or distributions, or viaareduction in future contributions. In conventional insurance contracts both parties are unaware of exactly what they will get. Well, a competitive market certainly helps. Islamic insurance is a term used for takaful that is a form of insurance based on principles of mutuality and co-operation, encompassing the elements of shared responsibility, joint indemnity, common interest and solidarity. Takaful, also called Islamic insurance, is a system of cooperative insurance for followers of Islam. "Takaful Market: Global Industry Trends, Share, Size, Growth, Opportunity and Forecast 2021-2026." These are all major sins in Islam and considered haram. In the same way, Muslims should be mindful of whetherother financial decisionsthey make according to these principles. However, the scholars have differed regarding making an insurance claim. These scholars and academics include, Sh. Governance Documents, Crescent Institute This is pure riba (interest/usury) and riba is one of the major sins in Islam. In Bangladesh there is no dedicated act on Takaful affairs despite the fact that takaful insurance has significant contribution to the market development. But fundamentally, a takaful model is identical to a conventional model in the important elements of the structure. Also, while youre here and thinking about planning your finances after you pass away for your loved ones, you should also think about sorting out your Islamic will. Make of that what you will! Like Islamic Banking and Islamic Finance, Takaful is also part of the faith-based economic system that are mainly driven by ethical practices and faithful moral values. Indeed, Allah is Forgiving and Merciful. Takaful is a type of Islamic insurance wherein members contribute money into a pool system to guarantee each other. Each participant's contributionis based on the type of coverage they require andtheir personal circumstances. What Is Takaful Insurance and How Does It Work? - Investopedia And because the contract/agreement is donations there can be no gharar (uncertainty) or riba (interest). It is a Shariah compliant mutual risk transfer agreement which involves participants and operators rather than sellers and buyers. No calamity occurred so you receive nothing. This makes the contract of insurance prohibited for a Muslim under the principles of sharia law. Is Life Insurance Halal? - Dr Zakir Naik - YouTube Prophet Muhammad: What Does Paradise Lies Under the Feet of Mothers Mean? Insurance companies hire expert statisticians and mathematicians to manage risk. Suzanne is a researcher, writer, and fact-checker. IMPORTANT INFORMATION: CLICK HERE FOR UPDATES ON COVID-19 AND YOUR SUPER, The concept of riba translates into English as interest. This lowers the risk factor of insurance companies. But some scholars allow certain insurance policies to be halal if you did not purchase it or if it is out of dharoorah (necessity). He weighed up the uncertainty caused by the transaction against the benefit that came from it, and clearly he decided that the benefit outweighed the harm. Hopefully, you should now have a good understanding of the debate about whether insurance is halal or haram. Your gains or losses in that business are halal and are not considered gambling. Is Health Insurance Halal in Islam? - Halal Trading Brokers Allied Market Research. The Prophet (peace be upon him) forbade Gharar Fahish (high levels of uncertainty) no exceptions. Takaful - Takaful Insurance These are all major sins in Islam known as Gharar, Maysir and Riba. This means an agreement of mutual assistance and peace . As with riba, the application of this Islamic concept to modern insurance is not completely clear. Takaful is a type of co-operative insurance based on the ideals of risk sharing and shared responsibility to ensure that the insurance practices are carried out as per the Islamic Sharia laws. http://www.amjaonline.org/en/component/easyblog/entry/the-question-of-insurance-part-1?Itemid=327, http://en.themwl.org/content/dissent-dr-mustafa-al-zarqa, https://archive.org/details/FinancialTransactionsInIslamicJurisprudenceVolume1, http://www.jamaalzarabozo.com/audio/insurance.pdf, Imam Muslim records in his Sahih: On the authority of Abu Hurairah who said that the Messenger of Allah (peace and blessings of Allah be upon him) forbade sales of a speculative nature (bai al-gharar)., Tirmidhi records the Prophet said Do not sell that which you do not have., Al-Bukhari and Muslim record On the authority of ibn Umar who said that the Messenger of Allah (peace and blessings of Allah be upon him) prohibited the sale of fruits until their ripeness and freedom from disease were apparent. 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