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Takaful is a Sharia-compliant Islamic insurance concept which is based on the principles of mutual cooperation, shared responsibility, and risk distribution among participants. In a Takaful system, policyholders contribute a specific amount of money into a common pool, managed by a Takaful operator. In the event of a claim, the pool is used to compensate the affected policyholders, while any surplus is distributed among the contributors or reinvested for the benefit of all participants.


The phonetics of the keyword “Takaful” is: /təˈkɑːfʊl/

Key Takeaways

  1. Takaful is a Shariah-compliant insurance model based on the principles of mutual cooperation, shared responsibility, and risk pooling among its participants. It is designed to cater to the needs of Muslim consumers who want insurance products that adhere to their faith’s guidelines.
  2. Unlike conventional insurance, Takaful operates based on the concept of Tabarru’ , where participants contribute to a common pool of funds, which is then used to cover potential risks and compensate any financial losses. Surpluses generated from this pool are redistributed among participants, instead of being kept by the insurance company as profits.
  3. Takaful can cover various types of insurance needs, including life, health, property, and auto insurance. It offers ethical and transparent services, as the Takaful operators are bound to invest the pooled funds in Halal businesses only, which excludes industries like gambling, alcohol, and weapons manufacturing. This makes Takaful an attractive option not only for Muslims but also for those who seek ethical investments in insurance.


Takaful is important in the business and finance sector as it is a form of Islamic insurance, based on the principles of mutual cooperation and risk sharing. This concept provides an ethical and equitable alternative to conventional insurance by adhering to Islamic laws, which prohibit interest, uncertainty, and speculation. By offering a Sharia-compliant option, Takaful enables Muslims and other ethically-minded individuals to access insurance products while ensuring they remain in line with their religious beliefs and values. Furthermore, its growth in recent years demonstrates the increasing demand for, and significance of, Takaful within the global insurance industry, contributing to the broader expansion and diversification of Islamic finance.


Takaful, derived from the Arabic word “Kafala,” meaning “guaranteeing one another,” is a unique form of Islamic insurance that is centered around the principles of mutuality and cooperation amongst participants. Its primary objective is to provide an alternative financial framework, aimed at protecting individuals and businesses from unexpected losses in a way that is compliant with Shariah, the Islamic law. The concept of Takaful is grounded in the idea of shared responsibility, where all participants contribute collectively into a pool of funds, and the risks are collectively borne by the group. Unlike conventional insurance practices, it promotes a sense of communal integrity, financial transparency, and social responsibility, which ultimately fosters a stronger bond within the community.

The practice of Takaful has paved the way for a more ethical and equitable approach to risk management, investment, and wealth distribution in the finance sector. Serving as a safety net for the financial wellbeing of community members, Takaful is used for various protection schemes, including life, health, property, motor, and other insurance needs. When a participant suffers a loss or damage, the claim is paid from the shared fund, thus providing a sense of collective security. Furthermore, any surplus funds that remain at the end of the financial year, after claims have been settled and expenses have been deducted, are returned to the participants in the form of cash rewards or premium rebates. Such profit-sharing arrangements encourage responsible behavior and discourage excessive claims, ensuring that the Takaful model upholds the principles of fairness and sustainability at its core.


Takaful is an Islamic insurance concept based on mutual cooperation and shared responsibility among members. It operates on the principles of shared risk and emphasizes a community-based approach to insurance. Here are three real-world examples of Takaful in business and finance:

1. Takaful Malaysia: Takaful Malaysia is one of the leading Takaful (Islamic insurance) providers in Malaysia, offering a wide range of Takaful products such as Family Takaful, General Takaful, and Medical Takaful. Established in 1984, the company has played a pivotal role in promoting the concept of Takaful in Malaysia and been instrumental in the growth of the Malaysian Takaful industry. Takaful Malaysia adheres to the principles of Shariah and ensures that the operations, investments, and management are compliant with Islamic teachings.

2. Salama Islamic Arab Insurance Company: Established in 1979 in Dubai, Salama Islamic Arab Insurance Company is a prominent provider of Takaful products in the United Arab Emirates and the Middle East. Salama offers a diverse array of Takaful products such as Motor Takaful, Medical Takaful, Travel Takaful, and Property Takaful. The company operates in accordance with Shariah principles, ensuring ethical and transparent business practices while providing its customers with reliable and resourceful financial protection.

3. Prudential BSN Takaful Berhad (PruBSN): A joint venture between Prudential Corporation Holdings Limited and Bank Simpanan Nasional, PruBSN was established in 2006 and has since become one of the leading Takaful providers in Malaysia. The company focuses on Family Takaful products, which include a range of protection, savings, and investment solutions that cater to the various needs of customers. PruBSN operates based on the Takaful concept and complies with Shariah principles, making it a prominent example of Islamic financial services in the business and finance sector.

Frequently Asked Questions(FAQ)

What is Takaful?

Takaful is a type of Islamic insurance where members contribute funds into a pooled system to guarantee each other against defined risks or losses. It is based on the principle of mutual assistance and risk-sharing among participants, and operates in compliance with Shariah laws, which prohibits interest (riba), uncertainty (gharar), and gambling (maysir).

How does Takaful work?

In Takaful, participants contribute a specific amount of money into a collective fund operated by the Takaful operator (company). The fund is then used to pay out claims in the event of a loss suffered by any of the participants. Any surplus in the fund at the end of a defined period is typically distributed among the participants, provided no claims have been made by them during that period.

How is Takaful different from conventional insurance?

The primary difference lies in the principles that govern the two systems. While conventional insurance is based on risk transfer and involves interest, uncertainty, and gambling elements, Takaful operates on mutual risk-sharing and solidarity among participants. Additionally, Takaful investments must comply with Shariah principles, ensuring the funds are invested only in ethically permissible sectors and transactions.

What are the main types of Takaful?

The two main types of Takaful are:1. Family Takaful (also known as Takaful Life Insurance) – It provides financial protection and long-term savings to participants and their beneficiaries in case of death, disability, or retirement of the participant.2. General Takaful – This covers various kinds of risks such as motor insurance, property insurance, health insurance, and others.

Who can participate in Takaful?

Takaful is open to individuals and businesses who wish to engage in an insurance-like scheme that is compliant with Islamic principles. Although predominantly popular among Muslims, Takaful is also open to non-Muslims seeking an ethical and cooperative risk-sharing alternative to conventional insurance.

How is a Takaful operator regulated?

Takaful operators are regulated by the insurance regulatory authority in the respective country where they operate. Regulations may vary from one country to another, but generally, Takaful operators are required to follow specific legal guidelines and operational standards to ensure the proper management of the Takaful fund.

Are Takaful contributions tax-deductible?

The tax treatment of Takaful contributions and payouts may vary across different countries. In some jurisdictions, Takaful contributions and payouts may be treated similarly to conventional insurance for tax purposes. It is advisable to consult local tax regulations or seek guidance from a tax expert for specific tax implications in your country.

Can a non-Muslim Takaful operator offer Takaful products?

Yes, non-Muslim operators can offer Takaful products as long as they abide by the Shariah principles governing Takaful. They may also consult advisory services from Shariah boards, who ensure that the Takaful operations comply with Islamic teachings and practices.

Related Finance Terms

  • Shariah-compliant insurance
  • Risk-sharing
  • Tabarru’ (donation)
  • Mudarabah (profit-sharing)
  • Takaful operator

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