What is Takaful and how does it work?

“Takaful” means an arrangement based on mutual assistance under which Takaful participants agree to contribute to a common fund providing for mutual financial benefits payable to the Takaful participants or their beneficiaries on the occurrence of pre-agreed events.

Takaful is derived from Arabic word ‘kafala’ which means “Joint guarantee” or guaranteeing each other. Takaful literally means responsibility, guarantee, collective assurance, and mutual undertaking. Broadly speaking, Takaful is founded on the cooperative arrangement (Ta`awun) based on principles of mutuality and solidarity, encompassing the elements of joint indemnity and common interest.

There are three (3) aspects of mutuality embodied in Takaful, namely mutual help / assistance, mutual responsibility and mutual protection. When a person participates in a Takaful scheme, he does not only seek protection for himself but also jointly cooperates with other participants to mutually contribute to one another in case of need.

In essence, Takaful is based on the principle of “Ta`awun” (mutual assistance) as such the act of participation is Tabarru`at (charitable) in nature.