The document compares Islamic insurance (Takaful) and conventional insurance. It discusses the principles of Takaful, which include utmost good faith, insurable interest, proximate cause, indemnity, and subrogation. It outlines objections to conventional insurance, such as gharar (uncertainty), maysir (gambling), and riba (interest). The key differences highlighted are that Takaful is based on mutual cooperation and free from elements prohibited in Islam, while conventional insurance includes uncertainty, gambling, and interest. The document also explains the operation of Takaful, which can use Mudharabah, Wakala, or a combination model.

1. Islamic and
Conventional Insurance
AMRITA DEBNATH
ID NO. 17008
MBA
DEPT. OF BANKING AND INSURANCE
UNIVERSITY OF DHAKA

2. Principles of Islamic Insurance (Takaful)
Utmost Good Faith
Insurable Interest
Proximate Cause
Indemnity
Subrogation
Contribution

3. Objection Against Conventional Insurance
Gharar: Conventional
insurance involves the
elements of excessive
uncertainty in the contract.
Maysir: Gambling arises as
the consequences of the
presence of excessive
uncertainty that rely on future
outcomes.
Riba: Premiums are invested
in interest bearing financial
assets.
Motivated by Profit:
Conventional insurance
companies are motivated by
the desire for profit for the
shareholders.

4. Comparison between Islamic Insurance
and Conventional Insurance
Islamic Insurance (Takaful) Conventional Insurance
Based on mutual cooperation Based on solely on commercial
factors
Free from interest (Riba),
gambling (Maysir) and
uncertainty (Gharar)
Includes elements of interest,
gambling and uncertainty
Takaful companies are subject to
the governing law as well as a
Shari’a Supervisory Board
Only subject to the governing
laws

5. Comparison between Islamic Insurance
and Conventional Insurance (Contd.)
Islamic Insurance (Takaful) Conventional Insurance
There is a full segregation
between the Participants Takaful
Fund account and the
shareholders’ accounts
Premium paid by the Policyholder
is considered as income to the
company, belonging to the
shareholders
In case of the deficit of a
Participants’ Takaful Fund, the
Takaful operator (Wakeel)
provides free interest loan (Qard
Hasan) to the Participants)
In case of deficit, the
conventional insurance company
covers the risks

6. Operation of Islamic Insurance (Takaful)
Mudharabah model (profit-sharing): The manager
(shareholders) are sharing Profit and Losses with the
policyholders; used initially in Far East
Wakala model: Agency fee, received up front from the
contributions and transferred to shareholders fund;
A combination of both: Bahrain, UAE and Middle East
countries;
Al Waqf model: Mainly used in Pakistan and South Africa;
part of the contributed capital is irredeemable.

7. Thank You