This module aims to provide the distinct difference between Conventional Insurance and Takaful (Islamic Insurance).
Conventional Insurance is a way to provide security and compensation to what is valuable in the event of its loss, damage or destruction based on the principle of risk taking and speculation.
Two Aspects of Insurance
According to Shariah rules there are two aspects of Conventional Insurance, namely:
1. Conceptual Aspect
2. Practical Aspect
1. Conceptual Aspect
So far as the Concept of Insurance is concerned, it is to cover the risk of loss, or “fortunate many helping the unfortunate few”.
This concept is not only recognized, but also appreciated and rewarded by Islam.
"Help ye one another in righteousness and piety, but help ye not one another in sin and rancor". Al-Maidah Verse 2
2. Practical Aspect
Second Aspect of Insurance is practical aspect.
It is forbidden due to two reasons:
1. Maisir
2. Riba
Since these two things have been clearly prohibited by Islam, they cannot be justified on the conceptual
aspect of helping victims of various accidents or losses.
How Maisir & Riba exists ?
Maisir has been clearly prohibited by Quran and Hadith of the Holy Prophet (SAW).
Maisir has two basic elements, which cause to prohibit.namely:
1. Gharar
2. Khatar
Gharar literally means “Uncertainty”
Forms of Gharar :
1) Any bilateral transaction in which the liability of the party in the transaction is either uncertain or
contingent.
2) Consideration of either is not known.
3) Ultimate outcome of any one party is uncertain.
4) Delivery is not in the control of the obligor.
5) Payment form one side is certain, but from the other side is contingent.
Examples of Gharar
1) The participant loses the money paid for the premium when the insured event does not occur .
2) The company will be in deficit if the claims are higher than the amount contributed by the participants .
Khatar literally means to stipulate/conditionalize the ownership/profitability on uncertain event,
whereas money is involved in the both sides.
However, if money is not involved from both sides i.e. one party voluntarily (without any
compensation) declares “We shall compensate you on a particular event of loss”, it would not be
Khatar.
Example Of Khatar:
1) The participant contributes a small amount of premium in a hope to gain a large sum.
2) Presence of Gharar and Khatar makes speculation, gambling and conventional insurance prohibited.
Riba
The element of Riba (Interest) exists in lending or borrowing funds/investments at fixed interest, and
other related practices in the investment activities of the conventional insurance companies.
In conclusion, the elements of Maisir and Riba caused conventional insurance to be Haram. |
