Takaful and conventional insurance in Malaysia: an overview

In this paper the status of takaful and insurance in shari_ah and their operational mode were examined. To arrive at these findings and the discussions in this paper, reference was made to papers presented at various Islamic finance conferences, views and fatwas made by Islamic scholars and to some extent the sayings of Allah (S.W.T) and Prophet Muhammad (s.a.w) as carried in the Qur_an and Hadith, respectively. The basic concept of both takaful and insurance are viewed by many scholars as the same, in that the main objectives of both is that of providing protection against loss of properties and livelihood explained in Islam as `ikhtiar_. It is unanimously agreed that the differences between the two forms of insurance is the mode of operating them. While takaful is based on Shari_ah compliant principles for example paying premiums on the basis of tabarru and devoid of interest, it was identified that conventional insurance contains 3 Shari_ah non-compliant elements namely; gharar (uncertainty), riba (interest) and maysir (gambling) which makes it unlawful in Shari_ah. The differences in the operational modes of the two are highlighted and the conflicting points of conventional insurance with the Shari_ah are addressed. Keywords Takaful, insurance, Shari_ah compliance, operational models.