To most people, Takaful is equal to insurance, while both Takaful and Insurance protects you against certain risk, the difference is Takaful operates according to Syariah compliant laws as well as using Islamic teachings to form its policies. This means that Takaful is free from Gharar (unknown or uncertain factors); Riba’ (interest or usury); and Maysir (gambling).
Takaful is derived from an Arabic word which means ‘joint guarantee’. Premised on the key principles of tabarru (donation) and ta’awun (mutual cooperation), takaful pools the contributions from the takaful participants for the
mutual indemnification of losses among its members. The scope of events and/or risks covered in a takaful arrangement is pre-agreed collectively by the participants.
In conventional insurance, you pay a premium to a Insurance company to “transfer” your risk to them, thus the insurance company assume the risk. while in Takaful, it works on the basis of mutual help (ta’awun). When you enter into a contract (aqad) with a Takaful operator (In this case, Zurich Takaful), you become a participant of a fund (Participants’ Special Account) and agree to help other participants when they face a loss and make a claim. Instead of “transferring” your risk in conventional insurance, you will be are “sharing” the risk among all participants who face the same risk. The Takaful operator merely act as the manager to the Takaful fund.
As the Takaful fund belongs to all participants, any surplus in the funds after deducting all expenses and fees will generally be distributed back to the participants.