Contents

History of Takaful
Basic principles of takaful
Takaful basic elements
Takaful VS conventional insurance
Process of takaful, how it works
Takaful Pakistan limited
Products of takaful Pakistan limited
Takaful
Takaful word is derived from the Arabic verb called kafala. The word kafala means to guarantee, to
assure and to take care of those in needs. And in simple words the Islamic insurance in a term used for
takaful.

History of takaful
Takaful originated within the ancient Arab tribes as a pooled liability that obliged those who committed
offences against members of a different tribe to pay compensation to the victims or their heirs. This
principle later extended to many walks of life, including sea trade, in which participants contributed to a
fund to cover anyone in a group who suffered mishaps on sea voyages. 

Now in modern days the conventional insurance, where companies sell policies and invest for the profit
of their share holders who are not necessarily policy holders. Therefore, there is clear complications in
policy holders and shareholders.

Takaful, however, is based on the cooperative principle and the principle of distinction between
shareholders' funds and operations, thus passing on ownership and operations of the Takaful
(Insurance) fund to the policyholders. Muslim jurists conclude that insurance in Islam should be based
on mutuality and cooperation principles, including joint liability elements,

Basic principles of Takaful

 Mutuality
 Co-operation
 Encompassing the elements of shared responsibility
 Joint indemnity
 Common interest and solidarity

Takaful basic elements

  Mutuality and cooperation. 
 Tabarru'at's Takaful contract as opposed to mu'awadat in the case of Tabarru’at
Conventional insurance. 
 Payments are made with Tabarru's purpose to (contribution) 
 The elements of Gharrar, Maisir and Riba are removed. 
 Wakalah/Modarabah operational basis. 
 Joint Guarantee / Indemnity-shared liability among participants. 

Takaful VS Conventional insurance

Takaful Conventional insurance

It is based on mutuality; the risk is therefore It is a risk transfer process by which risk is
not transferred but shared by the members transferred to the insurance provider (the
who form a collective pool. The business insurer) from the policy holder (the insured)
works only as the pool master, in view of the 'insurance premium' paid by

"By making contributions as "Conditional
Donations" (tabarru) for a good cause, like.
to mitigate the loss suffered by any of the
participants, the element of 'uncertainty' i.e.,
'gharrar' is brought down to acceptable levels
under Shariah.
In the spirit of Ne'ea (purity) and
brotherhood, the participant pays the
contribution (tabarru); hence, it obviates the
'maisir' aspect while at the same time losing
the value of Takaful in the same way as
traditional insurance.
Only non-interest-bearing, i.e., riba-free
securities, are invested in the funds.
The surplus belongs to the participants and is
thus returned to them at the end of the
accounting period (in proportion to their
respective shares of contributions).
the insured.
It contains the aspect of confusion that is
prohibited in Islam, like. "gharrar". There is
confusion as to whether there will be any
loss and how much compensation would be
payable.
It includes a gambling aspect, like 'maisir' in
that in the expectation of benefit
(compensation/payment against claim), the
insured pays a sum (premium). If the
anticipated loss (claim) does not occur, the
amount paid as a premium is lost to the
insured. If the loss occurs, the insurer loses a
much larger amount than the premium and
the insured gains are collected.
Funds are often invested in instruments
bearing fixed interest, such as shares, TFCs,
stocks, etc. Therefore, they contain the "riba"
(usury) aspect that is prohibited in Islam.
Shareholders are responsible for the surplus
or benefit. During the insurance duration, the
insured is compensated but is not entitled to
any return at the end of that period.

Process of takaful
In a takaful agreement, both parties or policyholders agree to guarantee each other and make
contributions to a pool or mutual fund instead of paying primes. The Takaful Fund is generated by
the pool of contributions received. The contribution of each participant is based on the kind of
coverage they need and their personal circumstances. The essence of the risk and the duration are
defined in a takaful contract.

Similar to that of a traditional insurance

policy, a taka contract outlines the extent
of the risk and the period of the coverage.

The takaful fund is managed and

operated by a takaful operator on behalf
of the participants who charges an
agreed-upon fee to cover expenses. Costs
 include sales and marketing, underwriting, and claims processing, much like a traditional insurance
business.

Any claims made by participants are paid out of the takaful fund

Takaful Pakistan limited

The company has offices in Lahore and Peshawar and is headquartered in Karachi with the goal
of offering insurance policies based on riba-free, gharaar-free and shariah-compliant plans.

Products
Although its list of products is very large but here are some of its offerings
Its products are divided into two categories
1. Personal line
2. Corporate

Personal line products

 Motor takaful
Comprehensive motor coverage is strongly
recommended, considering the growing
number of road accidents and the rising cost of
repairs. For all your motor-related problems, on
or off the road, Takaful Pakistan offers a
complete solution. And there are numerous
private car and commercial vehicle policies,
 Home takaful
Home and materials (including jewelry & cash) are protected against the danger of fire,
earthquake, explosion, lightning, thunderbolt, flood, typhoon, theft, pipe burst, aircraft damage,
mirror damage, etc.
 Personal takaful
This is 24 hours of worldwide coverage providing compensation to the covered person in the
event of death or loss of limb or bodily injury resulting in temporary or permanent impairment,
partial disability or complete disability resulting from an accident.

Corporate products
 Property
This provides the basic Property Takaful Policy designed to cover participant's properties
(i.e., buildings, machinery, stock -raw material. machinery and other contents) whilst at
participant specified locations and provide coverage to the participant / firm / organizations in
the event of loss or damage caused by perils such as fire & lightning, riot & strike damage,
atmosphere disturbance, earthquake fire & shock, aircraft damage, malicious damage &
impact damage
 Miscellaneous
There are so many products in this category but we have taken one for example
 Burglary takaful
This policy offers compensation of the participant's property loss and/or injury when inside the
company premises against the risks of theft/burglary resulting from the entry of force and
abuse. Harm to the premises arising from attempted theft/burglary is also protected by the
regulation.
 Marine
The interests of freight carriers are exposed to various financial risks in the course of their
business of importing, exporting and transporting goods within the world. As no one can afford
to take the risk of leaving their cargo uninsured, the transport of cargo is invariably carried out
in accordance with marine insurance coverage. Our Maritime Cargo cover protects your
products from the different hazards involved. For all types of cargo transported by different
transport modes, such as sea, air, land and parcel post, during transit, from warehouse to
warehouse.
So, this was about takaful. And why there was need of takaful when there was conventional
insurance going on. To meet with Islamic perspective. It was important and to go according to
the shariah now a days there are 40 billion worth of takaful insurance industry and still its
growing and people are accepting it. And differences of conventional and takaful insurance are
highlighted