Takaful (التكافل) is an Islamic financial product/ service structured in a way that a number of participants share specific types of risks on a cooperative basis. Takaful is based on the notion of ta’awun (collective efforts to help each other), and the insurer (takaful operator) is bound to comply with shari’a in its operations and investing activities.
According to the wakalah model (a model based on wakalah– الوكالة), the takaful operator acts as an agent (wakeel) on behalf of the participants (providers of funds and the insured) against a fee. The participants contribute money into a general takaful fund which is managed by the operator. The operator receives performance-based compensation either out of the general takaful fund or the proceeds generated from investing the fund’s pool of contributions. Under shari’ah, the takaful operator is not entitled to share in underwriting profits or surplus, which will go solely to the participants.
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