A comparison between insurance and takaful.

Insurance is a legal agreement between two parties-the insurer and the insured, also known as insurance coverage or insurance policy. The insurer provides financial coverage for the losses of the insured that she/he bear under certain circumstances. An arrangement by which a country or the state undertakes to provide a guarantee of compensation for specified loss, damage illness, or death in return for payment of a specified premium.

The word '' TAKAFUL'' is derived from the Arabic word Kafala, which means to guarantee one another; to help; to take care of one's need; a scheme based on brotherhood, solidarity and mutual assistance which provides for mutual financial aid and assistance to the participants in case of need whereby the participants mutually agree to contribute for the purpose.'' (Takaful Act 1984)

Based on the principle of ta'awun (mutual assistance) and tabarru (voluntary contribution).The operation of the concept must be within the spirit of shariah.

In conventional insurance, the risk is transferred from the insured to the insurer. Takaful, on the other hand, is based on shared risk. Each participant donates to a takaful fund and in the event of loss, the participant will receive the amount of its claim.

Both insurance policies and takaful cover the same range of products including house, car, life, personal accident, medical and more. The only difference would be that a takaful plan may extend to include Islamic obligations such as travel and medical coverage for Hajj and Umrah.

Insurance is based on the commercial factor, and follow by government laws. Its principle is based on the purchase agreement and its payment is premium. In this their application eligibility is anyone can apply. In this risk is absorbed by the company. It includes fixed commission rate on the other hand profit are giving to the shareholder. In this no surplus is shared.

Takaful is based on mutual cooperation among takaful participants based on Wakalah contract between participants and the takaful operator. It is followed by Shariah laws and government laws. It is based on the tabarru (donations) and its payment is contribution. In this their application eligibility is anyone can apply. Risk is shared between participants. It may include wakalah fee that will reduce over time. Profits are shared between participants and the takaful operator based on the Mudarabah contract.

The general insurance sector of Pakistan, operating with approximately 28...