The meaning of the word Takaful is Islamic insurance which arises from Islamic banking. In this system, there are certain rules and regulations which are to be followed in order to keep the whole system interest-free and pure. This system has taken several forms since it was first practiced in Arabian places like Medina and Mecca.
The basic concept behind this system of insurance is to keep oneself protected from any disastrous situations. For instance, if someone’s family member dies, any sort of accident takes place, anyone starts to face financial crisis at some point in their lives, or any other sort of unforeseen loss or damage occurs, Islam suggests its followers to indulge themselves in a system which can protect them under such circumstances. But this system needs to be completely pure, where no interest is charged from any one and in any form. All the profits earned are through hard work and not by illegal means or businesses of such goods and/or services that are strictly prohibited in Islam.
In addition to this, Takaful also teaches the society the moral and ethical standards which are necessary for all of us to live in a peaceful society. It tells us how to mutually co-operate with others and help them when they need our help. And this is to be done without any lust for money, interest or profits from any other illegal means. When a group of Muslims indulge themselves in this system of insurance, they agree to the terms and conditions which were provided by Islam and the Prophet Muhammad (p.b.u.h.) a long time ago. As mentioned before, there are three elements in Takaful that have no place whatsoever – Riba (interest), Gharar (uncertainty) and Maisir (gambling). The policyholders or the members, who agree to donate each other in the hour of need, equally share the money from the investments that are made between them. This capital is not to be invested in businesses or monetary systems which carry out un-Islamic means and ways to earn money. In fact, this money can be used in other businesses which are pure of such acts, for example, the food industry, education, health, etc. Earning profits is not prohibited in Islam; in fact, Prophet Muhammad (p.b.u.h.) himself encouraged such investments which eventually benefit the whole society, city or even country via various ways. For instance, it can create job opportunities, reduce poverty, increase the standard of living of people, and eventually help nations to prosper.
Compared to conventional banking system, the foremost advantages of a Takaful system are:
Full monetary return if someone is unwilling to continue the premium
Distribution of Zakat is much more effective and helps a larger number of people.
Insured shares the profit, and not a little amount of bonus like in the conventional system.
These were only a few of the advantages that Takaful offers to its policyholders. To sum it all, one can easily find the positives in Takaful system and no negatives whatsoever!