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Is Life insurance in Islam halal?
No, life insurance in Islam is not halal, it is haram because typical life insurance breaks 4 Islamic rules:
- Ghara – uncertainty or deception
- Maysir – gambling
- Riba – usury or unjust (insurance has an interest in its calculation)
- Only Allah is responsible for life, death for Islamic people.
However, there is a substitution for typical life insurance and it is called Takaful.
What is Takaful in Islam?
Takaful represents Islamic insurance where insurance customers contribute money into a pool system to guarantee each other against loss or damage. Takaful’s branded insurance is based on Sharia law, demonstrating how people cooperate and protect one another. Taka policies cover health, life, and general insurance.
Takaful insurance organizations, which are supposed to violate Islamic restrictions on gambling (riba), and al-Gharar (uncertainty) principles, were introduced as appropriate for those within the commercial insurance sector, all of which are banned in Sharia law.
Importance of Takaful in Islam
- Takaful is important Islamic insurance that prohibited interest while members contribute money into a pool system and still help each other.
- Takaful links deposits and investments to real underlying assets.
- Branded share insurance covers sharia and Islamic religious law’s health, life, and general needs.
- The claims from the members are reimbursed from the fund.
- Takaful helps financial institutions to get consistent returns, even during the economic downturn.
Know More about Takaful
All parties or policyholders agree, under a take-up arrangement, to guarantee one another and to contribute, rather than paying pool or mutual fund premiums. The collected pool of contributions creates an invaluable fund. Each participant’s contribution depends on the kind and personal coverage they need. The nature of the risk and coverage is stated in a takaful contract, similar to that of a conventional insurance policy.
On behalf of the participants, the takaful stock is managed and managed by a takaful operator who charges an agreed fee for the assessment. Cost includes marketing and sales, underwriting, and claim management, much like a conventional insurance company.
The takaful pays out all claims made by participants; the fund’s participants – not the takaful operator – have surpluses available after making provisions for the likely costs of other reserves and future claims. These funds can be distributed as cash distributions and dividends to participants or through a reduction in future bids.
The following principles must be applied to an Islamic insurance company operating a taka fund:
- It must function by Islamic principles of cooperation.
- Only Islamic insurance and reinsurance companies can receive or pay a reinsurance commission.
- There are two separate funds for the insurance company: one participant, one policyholder, one shareholder fund, and another.
Special Considerations
The global market is growing fast, according to a Research and Markets report. By the end of 2017, the market amounted to approximately USD 19 billion, and life and family were the largest segments. Furthermore, it is reported that thanks partly to large global Muslim populations — in particular in Asia-Pacific — Takaful is expected to rise to $40 trill by 2023.
Young Muslims makeup approximately 60% of the population and are more likely to grow the takeout market in the future. According to the report, some of the biggest names on the taka market are thought to be:
- Islamic Insurance Organization
- Zurich Malaysia
- Allianz
- Standard Chartered
- Prudential BSN Takaful Berhad
- Takaful Malaysia
Takaful vs. Conventional Insurance
Most Islamic jurists conclude that conventional insurance in Islam is unacceptable because, for the following reasons, it does not comply with Sharia law:
- Conventional insurance covers an al-gharar element of uncertainty.
- The concept and practice of charging interest are based on conventional insurance. On the other hand, Islamic insurance is based on tabarru, where some of the participant’s contributions are treated as a grant. That’s why policyholders usually call themselves participants in takaful.
- Conventional gambling insurance is considered.
From 2022.,Jason writes educational insurance articles for Promtinsurance.com.
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