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Conventional Insurance and Takaful: The 3 Key Differences and Why It's Crucial To Your Decision Making.

Writer's picture: mohamad adymohamad ady

Updated: Jan 22, 2024




If you are looking for a way to protect yourself and your family from unforeseen risks, you might be wondering whether to choose conventional insurance or takaful. Both options offer financial security and peace of mind, but they have some key differences that you should know before making a decision. In this blog post, we will explain the three main differences between conventional insurance and takaful, and why they matter for your personal and religious preferences.


1. The concept of risk-sharing.

Conventional insurance is based on the idea of risk-transfer, where the insured pays a premium to the insurer, who then assumes the risk and pays out a claim in case of a loss. Takaful, on the other hand, is based on the idea of risk-sharing, where the participants contribute to a pool of funds, which is then used to help each other in case of a loss. The pool is managed by a takaful operator, who charges a fee for its services. In takaful, there is no transfer of risk from the participants to the operator, but rather a mutual cooperation among the participants.


2. The compliance with Shariah principles.

Conventional insurance may involve elements that are prohibited by Islamic law, such as interest (riba), uncertainty (gharar), and gambling (maysir). These elements may arise from the way the premiums are invested, the way the claims are calculated, or the way the profits are distributed. Takaful, on the other hand, is designed to comply with Shariah principles, which prohibit any form of exploitation, injustice, or harm. Takaful operators invest the pool of funds in halal (permissible) activities, calculate the claims based on actual losses, and distribute any surplus among the participants or donate it to charity.


3. The impact on society and environment.

Conventional insurance may not take into account the social and environmental consequences of its operations, such as supporting harmful industries, causing pollution, or neglecting social responsibility. Takaful, on the other hand, aims to promote social solidarity, ethical values, and environmental sustainability. Takaful operators follow ethical guidelines in their investments, operations, and governance, and seek to contribute to the welfare of society and the protection of the environment.


These are the three key differences between conventional insurance and takaful that you should consider when choosing a protection plan for yourself and your family. Depending on your personal beliefs, values, and preferences, you may find one option more suitable than the other. However, regardless of your choice, you should always compare different plans and providers to find the best deal for your needs.

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