Life Insurance Versus Takaful Famili

A common question that many Malaysians ask when it comes to buying insurance is this: What is the difference between Takaful and Life Insurance? Basically, Takaful is based on Shariah (Islamic Law) principles, and the general concept of a Takaful is:

A group of people (in this case, policy owners) contribute a sum of money to a Takaful fund in the form of participative contribution (tabarru’). These policy owners will undertake a contract (aqad) for them to become one of the participants; by agreeing to mutually help each other should any of the participants suffer any form of misfortune, either arising from death, permanent disability, loss, damage, or any other such misfortunes as covered under the Takaful they personally undertake.

Here is a basic example of how Takaful works: Eg: Sharifah and Shafawati contribute RM100 a month to a Takaful fund for ten years. During that period of time, should any one of them suffer any misfortune (or death), the benefit will be taken out from the fund that they contributed to, and not from their individual accounts.

Issues	Takaful	Life Insurance
ACCOUNTS	For Life Takaful, there are two accounts, namely Personal Accident (PA), which is treated in line with the principles of al-Mudharabah; the other account is Participants’ Special Account (PSA), which is treated on the basis of al-Tabarru.	In life insurance policy, the collected premiums are credited into the account known as life insurance account or fund.
BENEFITS	Paid from the defined funds under joint indemnity borne by participants.	Paid from the funds legally owned by the company.
BONUS	Takaful contract specifies from the outset how the profits from Takaful investments are to be shared between the operator and the participants. This shall be in accordance with the principle of al-Mudarabah, and the share could be in the ratio of: e.g. 5: 5 or 6:4 or 7:3 etc. as agreed between the participant and the operator in the contract regardless of the amount of investment profit made during the year.	May offer bonus or profits in general terms only, especially with profit policies, i.e. there is no exact specification with regard to the profit-sharing in the contract. The rate of bonus itself can vary from year to year and is up to the discretion of the Board of Directors of the company.
CLAIMS	In a life Takaful policy, if the risk occurs, the beneficiary(s) shall have the right to claim the policy value from the PSA besides the accumulated entire amount from the PA. But if in this category of policy, the participant survives at the maturity of the policy, his/her claim shall be confined within the amount available in the PA.	In a life insurance policy where the risk occurs, the beneficiary (s) shall have the right to claim whole amount named in the policy. But in the case the risk does not occur, the insured shall have the right to claim the policy value at maturity together with the interest if any.