Issues in conventional Insurance

Conventional insurance contains elements contradictory to Islamic Shariah like Uncertainty [Gharar], Gambling [Maisir] and
Interest [Riba]. The insurance contract contains uncertainty due to Uncertainty whether the payment will be accepted as
promised, the amount to be paid is not known and the time it will occur is not known. Any form of contract which is lopsided
in favour of one party at the expense and unjust loss to the other is classified as Gharar.
When a claim is not made the insurance company may acquire all the profits whilst the participant may not obtain any profit
whatsoever. The loss of premiums on cancellation of a life insurance policy by the policyholder, or the "double standard"
condition of charging a customary short period in general insurance, whilst only a proportional refund is made if the insurance
company terminates the cover is also considered as unjust.
In furtherance, conventional insurance involves gambling because the participant contributes a small amount of premium in
hope to gain a large sum; the participant loses the money paid for the premium when the insured event does not occur and
the company will be in deficit if claims are higher than contributions.
When a life insurance policyholder dies after only paying part of the premium his dependants receive a certain some of money
which the policyholder has not been informed of and has no knowledge as to how and from where it has been derived.
Apart from the above, conventional insurance involves interest because an element of interest exists in conventional life

Takaful Insurance Business

The astonishing results of the underestimated Islamic Banking in Pakistan have compelled the decision makers of normal
interest-based banks to dedicate at least one of their branches as Islamic Bank. With such a wide spread appreciation from
the general public in respect of Islamic Banking it is expected that any Islamic product like Takaful will reap the same result
because Muslim jurists conclude the fact that insurance in Islam is based on the principles of mutuality and
cooperation. Such Insurance encompasses the elements of shared responsibility, joint indemnity, common
interest and solidarity. This article is an endeavour to understand ifs and buts of Takaful, corporate law areas and taxation
aspects.
Concept of Takaful
Muslim jurists acknowledge that the basis of shared responsibility in the system of "aquila" as practised between Muslims of
Mecca and Medina laid the foundation of mutual insurance. Islamic insurance was established in the early second century of
the Islamic era when Muslim Arabs expanding trade into Asia mutually agreed to contribute to a fund to cover anyone in the
group that incurred mishaps or robberies along the numerous sea voyages (marine insurance).
Takaful is an Arabic word meaning “guaranteeing each other” or joint guarantee. The Tabarru' system is the main core of the
Takaful system making it free from uncertainty and gambling. Tabarru' means "donation; gift; contribution." Each participant
that needs protection must be present with the sincere intention to donate to other participants faced with difficulties.
Therefore, Islamic insurance exists where each participant contributes into a fund that is used to support one another with
each participant contributing sufficient amounts to cover expected claims. The objective of Takaful is to pay a defined loss
from a defined fund.