Takaful or Islamic Insurance: Part A

Conceptual Explanation

The concept of takaful or Islamic insurance is to encourage individuals to help one another. Thus, the concept manifests the principle of mutual help or indemnity. Interestingly, those who enter into takaful contract are actually considered as an insurer and insured person at the same time. Not only that they contribute some amount of money to help another person involved in the contract, but at the same time they are also entitled to receive assistance from those involved in the contract.

Historical Explanation
There were two situations which indicate that takaful or Islamic insurance was actually practised by the previous Muslim communities. The first situation concerned the practice of ‘aqilah or blood money and qasamah or collective blood money. For instance, when a member of Family A committed a murder against a member of Family B, the murderer could not be found, normally Family A would pay Family B qasamah. The second situation concerned the practice of the second righteous caliph of Islam, ‘Umar al-Khattab (r.a). During his caliphate, there were dawawin or agencies such as post office, military, and merchant. For instance, in military each officer was required to make contribution every month through deduction of monthly salaries in order to help those who were injured or dead in battlefields.

Fatwa or Religious Decree
There is fatwa or religious decree indicating that conventional insurance is prohibited under the Islamic law. For instance, conventional life insurance was prohibited under the Islamic law through a fatwa issued in 1972 based on a reason that the insurance embraces the element of gharar or uncertainty which generally invalidates a contract.

Legal Authority

Legal authorities for takaful or Islamic insurance are based on evidence from the Holy Qur’an through al-Ma’idah, verse 2, the practice of the second righteous caliph of Islam, ‘Umar al-Khattab (r.a), and various fatwa or religious decree.