Insurance
Takaful
Islamic insurance built on mutual help, where members share each other's losses.
Facts checked against sources onWhat does Takaful mean?
Takaful is insurance that follows Islamic law. Members pay contributions into a shared fund and agree to help each other, and claims are paid from that fund. An operator runs the fund for a fee (the wakala model) or for a share of the investment profit (the mudaraba model), rather than owning the risk as a conventional insurer does. The fund must invest in Sharia-compliant assets, such as sukuk instead of conventional bonds. Example: members contribute 1,000, claims are 700 and the operator's wakala fee is 200, leaving a surplus of 100 that can be shared back with members. Takaful is common in the Gulf, Malaysia and Indonesia.
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Related terms
- ReinsuranceInsurance for insurance companies.
- SukukIslamic certificates that give investors a share in assets, used in place of bonds.
- MurabahaAn Islamic finance sale at cost plus an agreed profit, usually paid in instalments.
- Loss ratioClaims as a share of premiums earned.
- Expense ratio (insurance)An insurer's costs of selling and running policies as a share of premiums.
- Combined ratioLoss ratio plus expense ratio. Below 100 percent means an underwriting profit.
- Float (insurance)Premiums an insurer holds and invests before it pays claims.
- PersistencyThe share of policies still in force and paying after a set time.
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