Insurance vs Takaful: Which One Should You Choose?

Kali terakhir diperbaharui January 26, 2023 oleh Hariz Hafiz
Insurance vs Takaful: Which One Should You Choose?

Insurance vs takaful, which one is better? Conventional insurance and takaful share the same goal which is to offer coverage against financial loss in event of unforeseen circumstances. Both insurance and Takaful require their participants to make contributions to start the coverage. However, some closer inspection will reveal some clear differences between these two.

Conventional Insurance vs Takaful, What Are the Major Differences?

Some of us may still be unclear about the conventional insurance coverage plan with takaful. There is a common misunderstanding that takaful is simply just the Islamic equivalent of conventional insurance and it is only accessible to Muslims.

Despite being based on Islamic principles, takaful is not a religious product and it is available to everyone, including non-Muslims. The most important you need to understand is that takaful represents Islamic principles.

What Is Insurance?

You must be familiar with terms like car insurance, life insurance, health insurance, and several others. So what exactly is insurance? An insurance policy is a written contract between two parties that commits one to protect the other from financial harm.

In exchange for the insurance premium you pay, this protection is offered. You can make an insurance claim if you are involved in an accident or another circumstance where you require your financial security.

Pros Cons
Offered by more insurers Profits go to shareholders
Fixed commission fee (2%) Includes non shariah-compliant elements
Investment-linked plan is available Premium rate depends on risk assessment

takaful malaysia

What Is Takaful?

In a form of Islamic insurance known as takaful, participants put money into a pool system to protect one another against loss or injury. In contrast to conventional insurance, where risk is transferred from the insured to the insurer, participants in takaful insurance share a common risk.

Sharia, or Islamic religious law, which outlines how people are obligated to cooperate and protect one another, is the foundation for takaful-branded insurance. Health, life, and general insurance needs are covered through takaful policies.

Protection is provided by takaful in accordance with shariah principles. On the other hand, conventional insurance is incompatible with Sharia law because it has these three components which are gharar, riba, and maisir.

Gharar (Uncertainty)

The contract’s element of uncertainty. There should be no ambiguity and complete clarity in the contract.

Riba (Interest)

The presence of interest. The insured pays an insurance premium, which the insurer uses to pay claims and earn a profit. Regardless of whether there are claims, the insurer always makes a profit.

Maisir (gambling)

The concept is similar to gambling. The insured is betting that they will get into an accident or that their property will get destroyed, while the insurer is betting that neither of those things will happen.

Takaful is a far better choice for Muslims who want insurance protection that complies with their religious views. Claims of participants are compensated from the takaful fund.

So, after deducting reserves for potential future claims and other expenses, any surpluses go to the fund’s participants rather than the takaful operator. These funds may be distributed to participants in the form of cash dividends or distributions or by reducing their future contributions.

Pros Cons
Shariah compliant Offered by limited insurers
Profits go to participants and operators* Wakalah charge depends on the price of the product
Fixed premium rate**
Umrah and Hajj Takaful plan is available

Differences Between Insurance and Takaful

Takaful and traditional insurance both provide protection from unexpected events. Participants must contribute a fixed amount to begin their coverage. For both plans, the insured must have a legitimate financial stake in the risk. Here are the key differences you must know:

Conventional Insurance Takaful
Subject to the Financial Services Act (FSA) 2013 Subject to the Islamic Financial Services Act (IFDA) 2013
Determined by risk factors Participants make a contribution based on the concept of tabarru (donation)
The premium from the insurance holder’s contribution can be invested in all forms of investment Takaful holders’ funds can only be invested in Shariah-compliant investments
May contain elements of riba, gharar and masyir Free from all elements of riba, gharar and masyir
The risk is borne by the insurance company as soon as the payment is made by the insurance holder Adopting the idea of risk sharing. Under the Takaful protection, all parties are jointly responsible for all risks.

takaful insurance in malaysia

Where to Get Insurance and Takaful?

Takaful is the way to go if you’re seeking for an all-inclusive, Shariah-compliant insurance solution with a set premium rate. Conventional insurance, on the other hand, can be a better choice for you if you value a wider range of insurers and a set commission rate. Whichever path you choose, be sure to do your homework and pick the best insurance plan for your need. At the end of the day, everything comes down to what you’re looking for.

Prior to deciding on the best takaful protection for you, you must confirm that all essential benefits, including as death, incapacity, serious illness, and property, are covered. In essence, finding a single protection plan that provides all the protections is difficult. Therefore, pick a policy that suits your needs.

For instance, you might choose a life and family takaful plan if you want a coverage that provides benefits after death. Additionally, you might offer greater protection and consider other factors such as savings, investments, and others.

If you are looking for the best car insurance and takaful available in Malaysia, you can get it at Qoala. Qoala offers a variety of the best takaful protection policies.

About Writer
Hariz Hafiz
With expertise in writing marketing and newspaper articles, now on a mission to help you understand everything there is to know about finance and insurance.

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