Difference Between Takaful And Conventional Insurance

Conventional insurance typically charges a fixed commission fee of 2 whereas takaful operators might impose a wakalah charge depending on the product and model.

Difference between takaful and conventional insurance. In conventional insurance the contract is based on the principles of exchange of interest. The main different between conventional insurance and takaful is the way in which the risk is handled and assessed along with the management of the takaful fund. 2 3 difference between takaful and conventional insurance takaful conventional insurance. With conventional insurance there is a transfer of risk from the policyholder to the insurance company in exchange for a premium.

The main difference between conventional insurance and takaful is that the former is a risk transfer model whereas the latter is a risk sharing model. This is because when you purchase conventional insurance the amount of coverage you re entitled to isn t left to chance. Conventional insurance involves making investments that can incur risk and generate profits that will be retained by the company while under takaful investment profits are distributed among both participants and shareholders on the basis of mudaraba or wakala models. Other differences are the relationship between the operators and the participants.

It is a co operative institution according to the principles of contract which is mutual co operation ta awun. Intent individual enters the agreement to contribute to a fund that can potentially help those experiencing the unfortunate situation. The conceptual difference between takaful and conventional insurance is that risk in takaful is not exchanged by way of contribution payments made to operator which means operator is not selling and participant is not buying any risk coverage. Ahmad ali khan 2003.

Ahmad ali khan 2003 it is a business institutions operated upon the principles of contract which is exchange. In contrast conventional insurance policies are purchased as one s personal financial security with the insurance company as the risk bearer. This means that from the customer s point of view takaful is an inferior insurance product compared to conventional insurance. While the conventional investment units of insurance invest based on their assessment of what fits their profiles takaful investments follow strict principles.