Halal insurance is essentially a form of Islamic insurance that complies with the principles of the Shariah. It is usually referred to as Takaful in the Arabic language, which means guaranteeing each other. This form of insurance centers around the ideas of donation, mutual cooperation, and bearing the other's burden. The concept bears some resemblance to the chit funds that are popular in India. On the whole, the system eliminates uncertainty, divides losses, and shares risk among the insurance policyholders.
It is thought to have originated many centuries ago amidst Arab tribes as a way to share responsibility. People contributed money to a common fund that could pay out compensation to victims of tragedies or help out those who suffered troubles during long journeys. A cooperative form of insurance, it was designed to promote mutual cooperation and solidarity. People who contributed money in the form of a donation agreed to share the risk of any loss of all or part of their money. The practice continues to the present day and demonstrates the willingness of the people involved to help others in their times of need.
Under halal insurance, there are no real policyholders — people who contribute to the mutual fund participate for mutual benefit. Every person in a halal insurance plan pays a subscription or premium, and profits are shared among the contributors. The liabilities are spread out amongst the entire community, and losses are divided. There is no uncertainty regarding compensation and subscription. Basically, the halal insurance form does not attempt to gain a benefit at the expense of others.
This is very different from conventional insurance where a clear distinction is made between the shareholders and the policyholders. In the conventional system, the insurance company bears all the risk. The person paying a premium deals with a large amount of uncertainty because both parties have no clear idea of what may happen. For instance, if the person insures his or her car, then the company has to shell out a lot of money proportionate to the damage in the event of an accident. If the owner never experiences an accident, then the owner is shortchanged because he or she receives nothing in return for paying the premium.
Companies also aren't totally transparent under conventional insurance agreements, and many may quote different premiums for people based on criteria like gender and age. Whatever policy they hand out also benefits the shareholders first and the policyholders second because they are in the business to make money. These companies may also invest capital in businesses or ventures that are declared unlawful under Islamic law.
In the case of halal insurance, the company managing the policy does not legally guarantee a positive return. To give such a guarantee would mean that interest was being received, which goes against the Shariah. The company only acts as an entrepreneurial agent for its contributors, maintaining the assets and protecting them. There are many halal insurance plans available for interested parties that cover health, family, and other aspects of life.
