Islamic Alternative for Your Life Insurance: Family Takaful

If you are looking for Shariah-compliant life insurance, the family takaful might be your alternative. Humans are exposed to a variety of risks. Risks are frequently the source of loss. Property may be damaged, and people or animals may be wounded or killed if a risk occurs. Risk and uncertainty are, in reality, unavoidable aspects of existence. The use of insurance is one of the methods for managing and mitigating risks. 

Conventional Insurance Is Not Acceptable According to the Shariah

Conventional insurance mitigates risk by selling insurance policies, whereby the policyholder (insured person or entity) transfers the risk to the insurance company. In return for a premium, the insurance company undertakes the responsibility to compensate the policyholder should the insured event occur. Most Islamic scholars have stated that this approach of risk mitigation is not Shariah-compliant because it incorporates haram elements such as riba, gharar, and maysir. Therefore, Muslims should not use conventional insurance.

Family Takaful Instead of Life Insurance

The purpose of family takaful is basically the same as the purpose of life insurance. Both aim to provide financial protection. However, the underlying contracts and principles are different. There are three aspects of mutuality embodied in takaful, namely, mutual help, mutual responsibility, and mutual protection from losses. Therefore, when a person joins a takaful plan, he not only seeks protection for himself, but also joins forces with other members in order to help one another in times of need.

Family takaful is a long-term policy in which most participants strive to save for their long-term needs, such as their children’s education, retirement, and death benefits for dependents.

Despite the fact that insurance and takaful have different contracts and features, family takaful plans can be comparable to those of conventional insurance. Like conventional insurance, family takaful has different types of plans. Two of the popular ones are:

1. Term Plan

The term plan offers coverage for a specific period of time. Beneficiaries can only receive benefits if the policyholders die or become totally or permanently disabled during the policy’s duration. Despite the low contribution, this takaful plan provides the most coverage when compared to other takaful plans. It does not, however, include features for saving and investing. Furthermore, because the primary goal of this plan is for protection, the returns in the tabarru accounts are relatively low.

2. Whole Life Plan

This plan aims for lifetime protection with a fixed death benefit. The amount of the contribution is fixed and paid for the rest of the participant’s life. This plan combines saving (investment) and protection. The policyholder can withdraw his savings for his personal use. As this plan have both saving and protection features, the contribution is more expensive than the term plan.

The primary distinction between takaful and conventional insurance is in the form of contract they use. In conventional insurance, the relationship between the parties is in the form of the insured and insurer. This type of relationship requires the insured to pay regular instalments (premium) in exchange for guaranteed compensation if the event stipulated in the contract happens. This is a probabilistic contract in which the compensation is dependent on circumstances that may or may not occur. As a result of this, conventional insurance raises a variety of Shariah issues.

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