Takaful, in short, can be defined as “Islamic insurance” or “interest-free insurance”.
This kind of insurance which may be called Takaful insurance system can be expressed charity or mutual responsibility. Charity insurance is an agreement which different persons come together and they agree with each other to compansate a possible damage of a disaster any member could be faced.
Fundamental Principles of Takaful insurance system as follow:
1- To find the aim of helping element.
2- To value premiums collected from capital owners and insurees with interest-free market instruments.
3- To behave selective for economic values which immoral or illegal in the fields of giving insurance deposits.
Takaful, is based on the logic of distributing risk among definite groups with the basis of responsibility sharing.
Takaful insurance is based on coming togethet by the principle of voluntary contribution (donation), by participants; and mutual charity (helping). It does not include gambling and uncertainty as different from traditional insurance.
Participants make an accumulation fund with money they have paid for a definite risk. This fund provides finance for related participant to compansate the damage in case risk occours. Extra money is collected in case of inadequacy in money collected in the fund. If money gives excess, this amount will be repaid to the participants.
In takaful insurance, the fund formed by the money collected from participants and the fund formed reflecting capital owners’ money are kept separetly. Moreover, a financial investment out of Islamic conditions must not be done by takaful insurance company.
Participant lasts his/her ownership on the money by paying for definite amount determined as yearly, before. But he/she cannot use the money for a period of time, after a short time, he/she can withdraw the money with its accumulated profit. Here, participant becomes a partner of mudarebe and the money is valued by takaful management. Premiums collected accumulated in a pool and the pool is administrated as if it was a company. The remaining after paying for equivalents of insurance for a damage or so on, is valued by financial instruments such as treasury bonds or state bills. In addition to this, it is valued by interest-free instruments in interest-free banks and the cost because of holding money in hand will be compansated and the profit obtained in the end of term is shared between insuree and the insurance.
It can be said that takaful insurance resembles an insurance type called cooperative insurance very much because of working logic.
Basic Rules of Takaful Insurance in terms of Islamic Law, fiqh, as following;
1-) Interest (Riba) and uncertainty are forbidden. (It is necessary to obey the principle of “asset backing”.
2-) Not to take excess risk. (maisir).
3-) Financing must be based on a concrete material, as visible and tangible.
4-) Principle of Loss and profit sharing must be applied.
5-) Speculation is prohibited.
6-) There must not be uncertain and inexplicit topics (gharar)) in the contract.
7-) Investments which made on some instruments which interest-bearer or thought as unsuitable for islamic rules (haram) must not present.
There are three basic insurance models based on takaful basis.
1-) Profit Sharing (Mudharabah) Model: In mudarebe principle, takaful manager behaves as an enterpriser, accepts contribution fees from investors periodically. Remaining of damage compansation and profit obtained from activities done by takaful manager have been shared between them with a ratio determined by investors and manager. This model has been used mainly in Asia, especially in Malaysia.
2-) Wakalah Model: This model has been used in Gulf Countries and the Middle East, especially. In this model, takaful insurance company takes some fares from the money which investors paid as a return for their service.
3-) Combined Model: It is a hybrid model which includes either profit sharing or Wakalah model.
There are three takaful products when we think of takaful under changing conditions.
General Takaful: Includes fire, property, labour and so on insurances that companies and indivudials come across these kinds of disasters generally.
Family Takaful: Its aim is protecting indivudials and companies in a long period. It Includes health plans, education, accident, marriage, pligrimage and umre. Expiry date changes from 10 years to 40 years.
Retakaful: Its aim is compansating damages of takaful investors for a long period, on a large scale. But ıt does not have a common usage.
Takaful and normal insurance companies are very much alike in respect of assurance offer. For this reason, takaful insurance companies can be liken to cooperative insurance companies or foundation syndicates. It does not include uncertainty and gambling as different from traditional insurances. The fundamental difference of takaful insurance from normal insurance is risk sharing according to some religious rules and paying attention to directing funds with basis of interest-free banking investment. Besides, takaful insurance can distribute shares of profit to the investors in case insurance gains profit. When looked from technical view, in fact, takaful insurance and classical insurance both have nearly the same structure.
– TRADITIONAL INSURANCE –
– Owner of company is capital owner.
– Risk transfer to insurance agent.
– Profit to company or capital owners.
– No limitation for investments.
– TAKAFUL INSURANCE –
– Owners of company are investors.
– Mutual risk sharing.
– Profit to company or investors.
– Investments arranged according to Islamic laws.