DIFFERENCE BETWEEN CONVENTIONAL INSURANCE ANDTAKAFUL
Before discussing the difference between Conventional insurance and Takafulit is better to first understand the concept of insurance and the Takaful.
WHAT IS INSURANCE?
“An agreement whereby one party, the Insurer, in return for a consideration,
the premium, undertakes to pay to the other party, the Insured, a sum of money or its equivalent in kind on the happening of a specified event, which is
contrary to the Insured’s financial interest”.
Malaysian Insurance Institute (MII) Text Book - Risk and Insurance.
WHAT IS TAKAFUL?
Takaful is a system of Islamic insurance based on the principle of
(voluntary contribution) where risk is shared collectively by agroup of participants paying contributions to a common fund against loss to any one ofthem.Takaful is operated on basis of shared responsibility, brotherhood, solidarity andmutual cooperation.
DIFFERENCE BETWEEN CONVENTIONAL INSURANCE & TAKAFUL
Conventional insurance Takaful
Law & regulation:
Sources of laws & regulation are setby stat and man-made.
It is a risk transfer mechanismwhereby risk is transferred from thepolicy holder to insurance company inconsideration of insurance premiumpaid by insured.
Sources of laws are based upondivine revelations (Holy Quran andHadith).
It is based on mutuality hence therisk is not transferred but shared byparticipants who form a commonpool. The company acts only asmanager of pool (Takaful Operator).