By Deeksha Agarwalla
In an age where Julia Roberts has insured her charming smile and David Beckham has done the same for his legs against millions of dollars, is it not only correct that Islam has found a method to let its followers insure their mere lives and houses?
First of all, the author thinks that it is imperative for the readers to know why insurance in its conventional form is illegal.
Think of insurance as a kitty party! A group of policyholders, who face similar risks, contribute a fixed amount of money periodically as a premium to a kitty. In case, one of the insured (or more) meets with the accident (against which they were insured), the kitty is used to pay for the damages instead of throwing parties. These elements of uncertainty, gambling and premium are forbidden.
How does Islam’s version of legal insurance work?
Now, Takaful is more like a cooperative society with a manager. People come together to collect money and insure themselves against a similar risk. This amount does not belong to the insurance company to invest as they please. Takaful is fearful of the interest, which the company might earn through the investment.
In the end, the process works the same way without the frills of gambling and interest. There are various hybrids of Takaful partnership, agency and mixtures of both, which exist around the world.
Are there even countries or people using this unconventional form of insurance? Duh, Yes.
Whether people are using it for religious reasons or for others, it has provided a big boost to the insurance industry in not only Gulf countries but also Islamic countries like Indonesia and Malaysia. EY formerly Ernst and Young has been publishing World Takaful Report since 2008, such has been its influence. #Fortune500Swag
Grrr…what about India?
In this entire system, where does India stand? India is home to the second largest population of Muslims in the world but we still do not have a financial system, which supports the Islamic form. Life Insurance Corporation is still looking at the steps to be taken. Further, the author did try to look for products, if they were available. However, internet searches and word of mouth have been fruitless.
If you know more about Takaful, enrich us with your knowledge in the comments. For all those who still have not got the hang of Takaful, following are the key points:
1. No interest, gambling or uncertainty, which implies no premium.
2. Policyholders pool in their contributions for mutual cover against similar risks.
3. The money is managed by an operator (generally the insurance company), who does not
have any ownership rights over the collected amount.
4. In the case of accidents, damages are paid from the collection and remaining is redistributed among members after allowing for expenses.
To know why financial literacy is so important in our lives, click here.
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Views presented in the article are those of the author and not of ED.