How Takaful works

Takaful is a way for people to protect one another in line with the principles of Shariah. Participants contribute to a shared fund, and the fund helps any participant who suffers a covered loss. Kalkaal is the Takaful operator: we manage the fund on behalf of the participants. This page explains how the arrangement works and what it means for you.

Takaful and conventional insurance

Both Takaful and conventional insurance help people manage the financial effects of a loss. The difference lies in how the arrangement is built and whom the fund serves.

• The basis: Takaful is mutual help between participants. Conventional insurance transfers risk to a company in exchange for a price.
• The fund: In Takaful, contributions go into a participants' risk fund that is kept separate from the operator's own money. In conventional insurance, the payments become the company's money.
• The operator's income: A Takaful operator earns an agreed, disclosed Wakala fee for managing the fund. A conventional insurer keeps what remains after claims and costs as its profit.
• Surplus: In Takaful, any surplus remains with the participants' risk fund and is handled under Shariah supervision. In conventional insurance, it belongs to the company.
• Investment: Takaful funds are invested only in Shariah-compliant ways, avoiding interest, excessive uncertainty and gambling.
• Oversight: A Takaful operator works under a Shariah Supervisory Board as well as the insurance regulator.

The participants' risk fund

When you take Takaful cover with Kalkaal, your contribution goes into the participants' risk fund. The fund is held for the participants as a group and is kept separate from Kalkaal's own funds. Claims from participants who suffer a covered loss are paid from it, together with the cost of Retakaful and other costs that belong to the fund.

Your contribution depends on the cover you choose and the risk involved. Your quotation and schedule show your contribution and what it covers.

Tabarru'

Tabarru' means a voluntary donation. When you join, you agree that your contribution is given to the fund as Tabarru', to help any participant who suffers a covered loss, including you.

Because the contribution is a donation made in a spirit of mutual help, known as Ta'awun, rather than the purchase of a promise of payment, the arrangement avoids the excessive uncertainty and gambling that Shariah scholars identify in conventional insurance.

The Wakala fee

Wakala means agency. Participants appoint Kalkaal as their agent to manage the fund on their behalf: to assess risks, issue cover, handle claims, arrange Retakaful and keep proper records.

For this work, Kalkaal receives an agreed Wakala fee. The fee is disclosed in your quotation and schedule, so you can see it before you agree to the cover.

Surplus

A surplus can arise when, over a period, the fund holds more than it needs after paying claims, Retakaful costs, reserves and the other costs that belong to the fund.

Any surplus is handled under the direction of the Shariah Supervisory Board and in line with applicable regulation. It may be held in reserve to strengthen the fund for future claims, or it may be distributed to eligible participants. A surplus is never guaranteed: whether one arises depends on the fund's experience in each period.

Retakaful

Some losses are too large for one fund to carry alone, such as serious damage to a large property or many claims arising from a single event. To protect the participants' risk fund, Kalkaal arranges Retakaful, the Takaful counterpart of reinsurance. Part of the risk is shared with Retakaful operators, which helps the fund remain able to meet participants' claims.

Shariah oversight

Kalkaal works under the supervision of its Shariah Supervisory Board. The Board:

• issues fatwas, or rulings, on Takaful matters
• reviews and certifies products before they are offered
• oversees how any surplus is distributed
• conducts Shariah audits of Kalkaal's operations

You can read about its members on the Shariah Supervisory Board page.

Your part as a participant

Takaful depends on every participant playing their part.

• Disclose accurately. Give complete and correct information when you apply and when your circumstances change. The fund relies on fair information from everyone, and incorrect information can affect your cover.
• Read your schedule. Your schedule and policy wording set out what is covered, what is excluded, your contribution and the Wakala fee. Check them when you receive them.
• Ask questions. If anything is unclear, ask a Kalkaal advisor before you agree to the cover, or at any time while you are covered.