Islamic Takaful insurance system offers many of the usual benefits of conventional insurance systems. The participants are insured against various financial and personal catastrophes according to the plan that they have subscribed to. They will also share in the profits that the Takaful company or operator have gained. These profits are typically distributed to the participants at the end of a maturity period, when a particular participant greatly needs it or in a way conforming to the prior agreement. These benefits are very similar to that of conventional insurance systems.
What additional benefits does Takaful offer over conventional insurance systems then? To answer this question, it will be helpful to provide a brief overview of the main features that differentiates Takaful from other systems. The first of these involve the fundamental way that Takaful is perceived both by its operators and its participants. In Takaful, the operator or company is usually considered a mere facilitator or manager and it is the participants who are themselves helping one another in times of need. This perception can raise the awareness of the participants to take better care of themselves and indirectly raise the overall profit levels of the system. Also, due to the company’s status as a manager, Takaful systems can potentially be more transparent than their conventional counterparts.
Another feature of Takaful is that it only engages in investments that are free from vice and usury. This is a fantastic side benefit to Takaful for those who want the moral high ground. The overall benefits to society from investing only in activities that actually promote growth as opposed to dubious activities that profit at others’ expense, cannot be overstated. A person who is more concerned with personal returns may see this as a limiting factor, but there are several arguments against this.
Note that the kind of people attracted to Takaful’s high morality may very well incur less risks overall and in that way increase the overall profits of the system. Another important argument is that the investments that are associated with vice are often inherently unstable and risky. The same can be said of interests or usury which indirectly contributes to the kind of manic-depressive cycles of extreme bulls (rise) and bears (fall) of economies throughout financial history. It is worth noting that many prominent economists have remarked on the relative stability of Islamic finances due to their emphasis on stability and avoidance of extreme risks.
Despite these “restrictions” or perhaps because of them, Islamic finances and Takaful have continued to grow steadily over the years. The fact that Takaful is relatively new should be seen not as an obstacle, but rather an opportunity to invest in the financial equivalent of a sleeping giant.
At the present, many Muslims do not have an avenue of investment that they are comfortable with. One out of every five persons in the world is a Muslim and that number seems to be growing. There are also a number of increasingly wary non-Muslim and Muslim investors alike who have a desire for more stable source of investment and insurance. These factors taken together makes Islamic finance and especially Takaful, a potentially lucrative investment as the sheer size of funds from the Muslims alone will give Takaful operators lots of capital to manage.
One last general benefit of Takaful involves the Takaful operators themselves. Due to the emphasis on morality in their investments and dealings, Takaful operators may have greater pressure to live up to the ideals of virtue themselves. This can be beneficial in many different ways and can contribute to a greater amount of profits overall.
In conclusion, Takaful is in many ways similar to a conventional insurance system which focuses on stability rather than quick growth at the expense of extreme risk. The emphasis on morality and mutual help provides stability and attracts participants who may have a lower risk profile. The number of these future participants is huge considering the interest in Takaful from Muslims and non-Muslims alike. Each potential investor is of course liable to check the background of a particular Takaful operator just as he or she would a conventional insurance company. Nevertheless, Takaful is certainly a rising financial system that can offer a surprising number of benefits to those who prioritize on stability and morality.