Islamic Insurance Essay Example | Topics and Well Written Essays - 2500 words

Islamic Insurance - Essay Example When the insured event doesn’t occur the insured person loses the sum invested in the policy and if the insurance claims are larger than the contributions then the insurance company is in deficit. The above three factors make conventional insurance â€Å"Haram- prohibited† in Islam. However, since safety and security is the basic human need in today’s uncertain world, therefore Muslim society needed an alternative to conventional insurance in order to secure their business transactions and personal interests. Islamic â€Å"shariah - code of conduct† is based on Muslim’s Holy book â€Å"Quran† and the sayings and traditions of the Prophet Mohammed, which preaches brotherhood and mutual interest in order to establish â€Å"just and equitable social order† in the society. Therefore, Takaful insurance was introduced to minimize the risk by mutual agreement which doesn’t exploit the interest of any party. C. TAKAFUL INSURANCE:  "Takaful is an Arabic word, which means â€Å"joint guarantee† or â€Å"mutual co-operative agreement†. Tabarru is the basic pillar of Takaful insurance which means charity or gift†, (International Co-operative and Mutual Insurance Federation, 2005). Takaful insurance is based on the principles of Islamic brotherhood that promotes common interest and solidarity. Both parties share the responsibility with a sincere intention to help the other in his/her difficult time by paying the defined loss from the defined sum. D. CHARACTERISTICS OF TAKAFUL INSURANCE: 1. Both parties trust each other and contribute their money into a common pool. 2. The losses are divided so that the element of â€Å"gharar -uncertainty† is reduced and liabilities of each party under the losses are calculated... This paper explaines why the conventional insurance in not permissible in Islam, defines takaful insurance and further explores the problem by determining the key features of takaful insurance and its differences and similarities with the conventional insurance. â€Å"Takaful is an Arabic word, which means â€Å"joint guarantee† or â€Å"mutual co-operative agreement†. Characteristics of takaful insurance are as follows: 1. Both parties trust each other and contribute their money into a common pool. 2. The losses are divided so that the element of â€Å"gharar -uncertainty† is reduced and liabilities of each party under the losses are calculated according to the Islamic pooling system. 3. The policy should not contain terms and conditions aiming towards getting the benefits at the cost of risking other party’s interest. 4. Both parties subscribe to help the other through guaranteed compensation so that uncertainty is removed. 5. The insurance funds are invested in instruments that are interest free. The study concludes that the chances for the growth of the takaful business are very promising. Takaful products are available in many countries which meet the needs of the corporations and individuals. However, the biggest challenge is to overcome the shortage of resources especially, human resources, by providing training and development to employees about Islamic financial models and retaining competent employees who can contribute to the growth of takaful industry.