Takaful

Insurance companies accrue income via the premiums charged to clients on the policies they have undertaken. These premiums are then gathered in a risk-pool from which claims are paid as they arise. Hence, insurance could simply be explained as the sale of money for money, of a greater or lesser amount, with a deferment in one of the payments. The presence of the following three elements within this business model render insurance impermissible:

Riba (Interest)

Defined as a surplus, void of any counterpart, which one of two contracting/transacting parties receives.

Insurance is an unequal exchange of money in premiums and compensations. Money paid in premiums almost never equals the money received in indemnity. Moreover, compensation received from the insurance company may be far greater than the premiums paid by the policyholder at the time of claim and vice-versa. Hence, Riba ensues for the policyholder if the indemnity is more than the premiums paid, and to the insurance company when compensation is nil or less than the premiums paid.

Qimaar (Gambling)

To pay for something which a person is unsure of acquiring.

Premiums are paid on the agreement that a claim will be paid out if and when and an event occurs. Furthermore, the insurance company reserves the right not to pay out the claim if it deems that the client is in contravention of any of the clauses in the policy.

Gharar (Uncertainty)

A transaction based on uncertainty.

The insurance company and the policyholder do not know at the time of agreement, if or when the insured risk will occur and whether compensation will actually be paid or not. Moreover, the policyholders do not know the exact value of actual compensation.

Conclusion

Upon scrutiny, it becomes apparent that the aforementioned elements are also present in Takaful insurance policies despite a play on words feigning otherwise. Furthermore, Takaful insurance providers are also underwritten or reinsured by conventional insurance companies or reinsurance providers to spread the risk of a large potential loss they could possibly incur.

It is the opinion of our Darul-Ifta that due to conventional insurance policies and Takaful insurance policies sharing similar methodologies, an identical Shar’ee ruling (impermissibility) will be applicable to both.