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Difference Between
Islamic & ConventionalInsurance______________ ______________ (2)
Insuranceis a risk transfer mechanism hereby the
individual or the businessenterprise can
shift some of theuncertainties of life on the
healthier, comfortable andeasy life tomeet this
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requirement different
enterprises produce and provide goodsand services. They
makeinnovation andinvention, which take
great risk. Largeresponsibility falls on the
shoulder of innovatorsand inventors. A small
error or lapse may cause
numerous side effects andcause deathor disability.
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These types of risks
highlight the importanceof insurance. If there hadnot beeninsurance at the
back of all innovators theworld would have never
progressed. After assuringthis in securityfactor the enterprises
started looking for newand more high-tech
machines robotsandgargets, atomic
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technology, space
traveling computers, deepsea exploration,development of concordsand jumbos and medical
technology for hydro hear led diseases. All
thesedevelopments could be possible with supportof insurance.In peace the
insurance provides
protection to trade andindustry, which ultimately
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contributestowards human
progress. Thus insuranceis the most lendingforce contributing
towardseconomics, socialand
technological progress of man. Without insurance
cover allindustrial,economic and
social activity of
the world will come to agrinding halt.An insurer,
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by nature, tries too split
and diversify its risks inmany ways a veryimportant way isto splitthem horizontally and
vertically withinreinsurance companies
and horizontally totheir competitors.The
following principles applyin insurance:
Insurable Interest.
Utmost good faith
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Proximate cause
Indemnity
Contribution
SubrogationThe insurancemarket comprises the
following types of
insurers:Lloyds.
Ordinary Life & GeneralCompanies
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Industrial Life Assurance
companiesFriendly societies
Mutual IndemnityAssociations
Captive Insurancecompanies
Self Insurance
The State.The premium
received goes into a fundor pool from which the
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claims are paid. Because
of largenumber of clientsin any particular fund or pool, the insurers can
predict, withreasonableaccuracy by
applying the law of largenumbers and actuarial
calculation methods, theamount of claims likely to be incurred in the coming
year. However, there will be some variation in
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claimcosts from year to
year for which a smallmargin is to be built up inreserve. As a result of
better performance of insurance company some benefit is paid back to
the policyholders in shapeof bonus in life insurance
and no claim bonus ismotor/property insurance.
HOW INSURANCEIS AGAINST THE
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PRINCIPLES OF
SHARIAH?
DifferenceBetween Islamic& Conventional
Insurance______ ______________
________ (3)
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by the earlier Islamic
Jurisprudents. Itwas for the
firsttime
examined by aHanafi Jurist syed
Ibn Abdin (dead1252 H
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corresponding to1836 A.D.) attherequest of some
muslimmerchants who
sought his poinion about the
validity of marineinsurance
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under Islamiclaws. He
discussed theessence of marine
insurance and
concluded Iseethat it is not
permitted to anymerchant to get
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indemnity for hisdamaged
property againstthe payment of a
certain sum of
money known asinsurance
premium; because this is
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a commitmentfor what should not be committedto.The attitude
towards illegality
of insurance fromIslamic point of
view continuedfor full
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centuryafter ibnAbdin. However
in view of thetremendousimportance
assumed byinsurance for
themodernfinance, trade
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and industry thecontract of
insurance has been subject
matter of
extensiveand indepth studies
and discussionsamongst the
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IslamicJurisprudents
during the pastseveraldecades.In
1396 H (1976)
the firstinternational
conference onIslamic
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Economics washeld in
Makkah,whichwas attended bymore that 200
Islamic Juristsand Economists.
They reached at
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thefollowingdecision on it:The conference
sees that thecommercial
insurance whichis practiced by
thecommercialinsur
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ance companiesin this era doesnot conform to
the shariahprinciple of
cooperationandsolidarity
because it doesnot fulfill the
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shariahconditions which
would make itvali dand
acceptable.
This conferencealso suggested
that a committeecomprising of
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shariah Experts &MuslimEconomis
ts should beconstituted in
order to suggest a
system of insurance that
will be freeof Riba., Usury
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and gharar thematter continued
to receive theattention of
numerous groups
of IslamicJurisprudents in
cooperation witheminent and
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distinguishedeconomists and
insuranceexpertswho came
up with different
conclusion, viewsand opinions.
Some of themapproved allform
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s of insurancesubject to certain
conditions,limitations andqualifications,
otherstotallydisapprove
d all of them.However
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an overwhelmingmajority of
Islamicshariah.Theobjection is
against theexistence of the
weaknesses in the
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insurance contract namely:
Gharar(Uncertainry);
Mainsir(Gambling);
Riba (Usury).
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Introductionto Islamic
Insurance (Tak aful):
Muslim juristsacknowledge that
the basis of shared
responsibility in
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the system of "aquila"
as practiced between Muslims
of Mecca and
Medina laid thefoundation of
mutual insurance.
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Islamic insurancewas established
in the earlysecond century of
the Islamic era
whenMuslimArabs
expanding tradeinto Asia
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mutually agreedto contribute to a
fund to cover anyone in
thegroup that
incurred mishapsor robberies
along thenumerous sea
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voyages (marineinsurance).
Takaful Insurance
DifferenceBetween Islamic
& ConventionalInsurance______
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______________ ________ (5)
any one of themas defined in the pact. Takaful is
operated on the basis of shared
responsibility, br otherhood,
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solidarity andmutual
cooperation.Fatwa onTakaful:
The Islamic FiqhAcademy
emanating fromthe Organization
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of Islamicconference,
meeting initsSecond Sessionin Jeddah, Saudi
Arabia, from 10to 16 Rabiul
Thani, 1406 H(correspondingto
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22-28 December,1985) issued a
resolution whichin summary
stated the
following:After reviewingthe presentations
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made by participating
scholars duringthe session onthe
subject of
Insurance/Re-insurance;
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And after discussing the
same;
And after closelyexamining all
types and formsof insurance and
deeply examining
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the basic principles upon
which the arefounded and their
goals and
objectives;And having
looked into what
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has been issued by the Fiqh
Academies andother instituitions
in ths regard;
Resolves:1.The
commercialinsurance
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contractis prohibited(Haraam)
according to theShariah.2.The
alternativecontract which
conforms to the principle
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of Islamicdealings is
thecontract of cooperativeinsurance
(Takaful), whichis founded on the
basis of charitabledonatio
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n and Shariahcompliant
dealings.Muslim jurists thereforeconcluded that:
Insurance should be based on the
principles of
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mutuality andcooperation.
Insurance products should be founded on the basis of Tabarru,
an Arabic nounmeaningdonatio
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n, gift,contribution.
The insurancecompany mustconduct all itsaffairs in line
with the Shariah
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The participantsmutually
contribute to thesame fund for the purpose of
mutualindemnityin case of risk
and harm. 3
http://%20window.location.hash%3D%27/#outer_page_5'http://%20window.location.hash%3D%27/#outer_page_5'http://%20window.location.hash%3D%27/#outer_page_5'http://%20window.location.hash%3D%27/#outer_page_5'7/31/2019 Diff. Btween Islami & Conventional Insurnc System
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1.It is a
Risk Transfermechanism
whereby risk is
transferred fromthe policy holder
(the Insured)tothe Insurance
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Company (theInsurer) in
consideration of 'insurance
premium' paid by
theInsured. 3
http://www.takaful.com.pk/Fatwa.html
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Differencebetween
Insurance &TakafulDifference
Between Islamic
& ConventionalInsurance______
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______________ ________ (6)It is based on
mutuality; hencethe risk is not
transferred butshared
by the participants who
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forma common pool. The
Company actsonly as themanager of
the pool (TakafulOperator).
2.
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It contains theelement of
uncertainty i.e."gharrar"
which is
forbidden inIslam. There is
anuncertainty asto when any loss
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would occur andhow much
compensationwould be
payable.The
element of 'uncertainty' i.e.
'gharrar'
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isbrought downto acceptablelevels under
Shariah bymaking
contributions as"Conditional
Donations"(tabarru) for a
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good cause i.e. tomitigate thelosssuffered by any
one of the participants.
3.It contains an
element of gambling i.e.
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"maisir"in that the insured pays an amount(premium) intheexpectation of
gain (compensation/payment
against claim). If the anticipated
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loss (claim)doesnot occur, the
insured loses theamount paid as
premium. If the
loss does occur,the insurer loses a
far larger amountthan collected
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as premium andthe insured gains by the same.The participant paysthe contribution
(tabarru) inthe spirit of Ne'ea
(purity) and brotherhood;henc
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e it obviates theelement of
'maisir'while at the same
time without
losing the benefitof Takaful in the
same way as
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conventionalinsurance.
4.Funds are mostlyinvested in fixed
interest bearinginstruments like
bonds, TFCs,securities,
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etc.Hence thesecontain theelement of
"riba"(usury) which is
forbidden inIslam
Funds are onlyinvested in non-
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interest bearing,i.e.
riba-freeinstruments.
5.
Surplus or profit belongs to the
Shareholders.The insured is
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covered duringthe policy period butis not entitled
to any return atthe end of such
period. Surplus belongs to the
participants andis accordingly
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returned to them(in proportion totheir respective
shares of contributions) at
the end of theaccounting period