Takaful an Innovation to Contemporary Insurance

Limits to human reasoning prevent the prediction of future events is the main factor forcing us to buy insurance. By nature, human beings prefer to be safe and secure. However, there are no guarantees for absolute safety and security. Insurance was introduced to cover the financial loss in cases of misfortune. It provides monetary assistance to the policy holders according to the terms and conditions of the insurance policy. It is a noble concept; however, its practice is defective because the insurance operators engage in interest, uncertainty, gambling, and non-Shari'ah compliant investment. These practices make insurance unethical and unfair to the society. Unethicality is opposed by all religions. Thus, the objective of this paper is to highlight the involvement of prohibited elements of insurance practices and to suggest how to overcome the unethical elements of insurance by replacing them with Shari'ah complaint insurance i.e. Takaful. This paper is prepared based on library research and literature related to both insurance and Takaful is analysed thoroughly. Although Takaful is the modern name of ethical insurance, its practice started during the time of Prophet Muhammad (PBUH). It is based on the concept of mutual help and assistance for Takaful participants and fosters the practices of brotherhood and solidarity for the participants.