In conventional insurance the risk is entirely transferred from the policyholder to the insurance company upon payment of a premium. In return for paying the premium the policyholder gets peace of mind and in the event of a valid claim, the claim settled. This brings elements of uncertainty and, in the view of Muslims, gambling, into the contract as one of the two parties will make a loss, especially the policyholder if no claim occurs. Takaful is a structure, the first elements of which appeared in 7th Century, in which the risk is shared between all participants removing the elements of uncertainty and gambling from the contract.

Takaful means “guaranteeing each other” and is based on the principles of “Ta’awun” (mutual co-operation) and “Tabaru’a” (donation), where a group of Takaful Participants (policyholders) agree between themselves to share the risk of a potential loss to any of them, by making a donation of all or part of their Takaful Contribution (premium) to the Takaful Fund. The fund then will compensate the Participants for any loss.

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