^{ADCB Islamic Banking} The differences between Takaful and Conventional Insurance

Takaful is built on principles of mutual aid and shared responsibility, adhering strictly to Shari’ah law. It avoids the uncertainties (Gharar) and interest (Riba) found in conventional insurance, fostering a community-based support system.

While both conventional insurance and Takaful aim to offer protection, it is important to recognize the major differences between them.

Takaful

• Subject to Shari’ah principles and applicable laws
• Based on solidarity and mutual cooperation
• Based on Wakalah and Waqf contract
• Contributions paid by the participants are used to finance the Takaful solidarity fund and to cover all the other Wakalah/programme expenses. The Operator (the Wakeel) is not the owner of the fund
• Risks are shared and distributed among Takaful participants
• The Operator serves in the capacity of Wakeel
• Takaful plan holders and shareholders' capital is invested in Shari’ah-compliant investment

Conventional Insurance

• Subject to applicable laws only
• Based on commercial factors
• Based on compensatory contract
• All premiums received belong to the Insurance Company
• Risks are transferred from individual to the conventional Insurance Company
• Capital is invested in funds and investment channels which are not necessarily Shari’ah-compliant