Takaful is an alternative form of conventional insurance based on the concept of Shariah principles. Muslim societies in different parts of the world are now practising Takaful scheme as their own way of sharing financial responsibilities to assist each other. They have invented an Islamic way of mutual assistance to deal with uncertainties of life.
Takaful is a social scheme based on the principles of brotherhood, solidarity and mutual assistance. It provides mutual financial aids and assistance to those who are members of the Takaful scheme and voluntarily agree to contribute a certain amount of money for that purpose. It is a mutual agreement among the participants of the scheme. This has its origin from the concept of collective sharing of individual’s loss. Takaful, is being practised now as an alternate of conventional insurance system and is bounded by Islamic principles, rules and the law of Islam (Shariah).
Takaful is an Arabic word stemming from the verb “kafal” which means to take care of ones needs. Under this scheme, the members or the participants in a group agree to jointly guarantee themselves against loss or damage caused by specified perils. The entire group would assist the incumbent person from the fund they have created to alleviate (indemnify) his loss and or to provide him with financial help. Takaful is a legally binding agreement between all the participants of the scheme to pay any of the members who suffer a loss as specified in the takaful certificate (policy).
Takaful scheme has been evolved from the teachings of Islam i.e. on the basis of the Quaran and the Sunnah Takaful, generally means joint guarantee. It is understandings among a group of people (called the participants) who agree to reciprocally guarantee each other financially should any event (as defined in the contract) occur. The basic objective of a Takaful contract is to pay from a common fund, which is set up by the participants of the scheme. The fund thus created may be managed by the participants themselves or through professionals or by a registered Takaful Operator.
The fund is created by the equitable contributions of the participants.. In order to ensure that a Takaful scheme operates within the principles of Islamic teachings, the transactional aspects of the system is subjected to Islamic contractual laws.