This article was first published in Islamic Finance news Volume 16 Issue 38 dated the 25th September 2019
Aliredha Walji, Vice President, USA, writes about the alternative to conventional insurance in an article that was featured in Islamic Finance News.
Conventional insurance in the US is unacceptable to many Islamic jurists due to the elements of Gharar (excessive uncertainty) and Maysir (gambling). This is because those purchasing the insurance do not know how much longer they will live and do not necessarily understand all the details of the exchange. In addition, the premiums collected are often invested into bonds and other interest-bearing instruments that are not Shariah compliant.
In the Islamic space, the alternative to this model is Takaful. In it, members contribute money into a pool or fund to help guarantee each other against loss or damage. Contributions are considered as donations and policyholders share the insurance risk rather than giving it to the Takaful company. In addition, assets are invested in underlying securities which conform to Shariah compliant guidelines.