Takaful - Islamic insurance

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Business Standard writes:

LIC’s new international joint venture company - Indo-Saudi Insurance Company — will be the first to introduce takaful (in India). This Arabic word means ‘guaranteeing each other’ or joint guarantee.

“The entire pricing will be different as the benefits differ from conventional insurance policies,” LIC Managing Director K Mehrotra told

Takaful can be described as cooperative insurance where policyholders contribute a certain amount of money to a common pool. Each member pays his subscription (premium) to help those that need assistance. To some extent, it resembles the chit funds that operate mainly in southern India.

The purpose of takaful is not to profit, but to support the belief of “bearing each other’s burden”. Losses are divided while liabilities spread across the community pooling system. The idea is not to derive any benefits at the cost of others. Instead, it eliminates uncertainty in terms of premium and compensation.

“Takaful is a Shari’ah compliant product.” While LIC will offer a range of insurance products like endowment, money-back, single premium policies, among others, “the returns would need to be inbuilt into the pricing, and cannot be called bonus or profits,” said the managing director.

Looks to me more a matter of semantics than any real difference. Reminds me of Islamic mortgage...instead of paying interest on the loan, the purchaser pays the bank 'rent' for living in the property until the loan is paid off and incurs double stamp duty in the process.

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