Could anybody enlighten me how Islamic Insurance works and how it differs from traditional insurance?

Question

Could anybody enlighten me how Islamic Insurance works and how it differs from traditional insurance?

Answer 1

It is called Takaful Insurance

Takaful is an Arabic word meaning “guaranteeing each other” or joint guarantee.

The Tabarru' system is the main core of the takaful system making it free from uncertainty and gambling. Tabarru' means "donation; gift; contribution." Each participant that needs protection must be present with the sincere intention to donate to other participants faced with difficulties. Therefore, Islamic insurance exists where each participant contributes into a fund that is used to support one another with each participant contributing sufficient amounts to cover expected claims. The objective of takaful is to pay a defined loss from a defined fund.

Muslim jurists conclude that insurance in Islam should be based on principles of mutuality and cooperation. Encompassing the elements of shared responsibility, joint indemnity, common interest and solidarity.

Theoretically, Takaful is perceived as cooperative insurance, where members contribute a certain sum of money to a common pool. The purpose of this system is not profits but to uphold the principle of “bear ye one another’s burden.”

Answer 2

All it means is that it is a policy which is in compliance with their scripture which refers to the the earning of "interest" as evil. So, for starters as with any religion, every participnat observes in their own way and to their own degree, so geenrally any life policy that involves the accumulation of cash (which is usually invested in a vehicle which earns a return that could be classified as interest,) would not be an option. So, for example most Muslims would have no objection to a TERM life policy. Although some, depending on how they interpret the scripture may be OK with some of the various universal or participating plans out there.

The "islamic" monikere is a marketing technique. Its just traditonal insurance plans structured to comply with scripture and given a fancy title.