Conventional Insurance Versus Takaful

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Conventional insurance versus takaful-
The Islamic insurance

Insurance in Islam is essentially a concept of mutual help. Insurance business under conventional system is based on uncertainty, which is prohibited in Islamic society under Islamic principles. So there is need to clear the difference between the conventional insurance and the Islamic insurance. -------------------------------------------------

An insurance contract minimizes the risk of loss due to accident or ill-fated situation. In conventional setup, this agreement is unproblematic; but, its acceptance to Islamic law, or Shariah, is debatable. -------------------------------------------------

Conventional Insurance
Conventional insurance contains elements contradictory to Islamic Shari’ah. Gharar: “Uncertainty”
The insurance contract contains uncertainty due to:
* Uncertainty whether the payment will be accepted as promised * The amount to be paid is not known
* The time it will occur is not known
Maisir: Gambling
* The participant contributes a small amount of premium in hope to gain a large sum * The participant loses the money paid for the premium when the insured event does not occur * The company will be in deficit if claims are higher than contributions Riba: Interests

An element of interest exists in conventional life insurance products - as the insured, on his death, is entitled to get much more than he has paid Insurance funds invested in financial instruments such as bonds and stocks contain and element of Riba -------------------------------------------------

* Takaful is the Islamic alternative to conventional insurance * It is based on the idea of social solidarity, cooperation and joint sharing of losses of the members. * It is an agreement among a group of persons who agree to jointly cover the loss or damage that may cause upon any of them out of the fund they donate collectively *...
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