Comparative Study between Takaful & Conservative Insurance System
In Takaful System, the guarantee is a joint one which involves the agreement of all the members and they voluntarily consider this to be most ethical way of dealing with one’s money and hence they are ready to take the onus of profit and losses, However, in case of Conservational System, there is a definite loss of some person in exchange of the profit of the other, the profit in the conservational system is termed as the premium that is paid for the insurance amount and that is nonexistent in the Takaful set – up.
Risk Distribution System (Mohd Shril Matsawali, 2012):
The regular insurance is able to pay premium because there are some investors who are able to take a higher risk and the company is not taking responsibility of any of the risk that they are taking with their money and that is not there in the Takaful System.
Funding Mechanism (Ibn, 2015):
The fundamental System here in the Takaful System is that the contribution is made through participative model and there is a big onus in the form of the mutual trust that is brought in this system and hence, the returns are free from interest and one gets whatever one put in. Most importantly if there is a loss, then it is a cumulative loss and not an individual loss. The investment however cannot be in a business that exists only for profir or gambling etc.
Guiding Principles (Mazair, 2013):
The major backbone of the Takaful insurance system is the Sharia Laws, which are basically the Muslim religious laws and the entire system is followed based in this basic principle and the fundamentals are not lost under any circumstances.
The basic difference in the contracts of the two agreements is the Takaful insurance system, the person undergoing the contract has to give up on the individual benefits and well – being and have to think about the collective well – being of all the participants. In the conventional contract there are certain promised terms even in times of huge turbulence, but since the risk is shared in case of the Takaful Insurance, the contract terms does not allow anyone to take any advantage over others and the ideology is the well – being and harmony of everyone who is the part of the contract.
Penalty of Wrong Doing (Khan, 2014):
The concept of forfeiture is not existent in the Takaful Insurance system and moreover there is no scope of even a clause in the terms and conditions of the entire set up and whatever may be the circumstances there is no provision for the insurer to issue or release any premium or any other amount to anyone. This is a case in Conventional Insurance which allows the forfeiture of funds under certain circumstances, but not in the case of Takaful Insurance and it seldom turns out to be a big drawback.
Financial Statements (Baig, 2014):
The major difference that is seen in the Takaful Insurance System is the management of the Gross Earnings and Gross Profit, first of all the Gross Earning is such that everyone in the investment domain has equal right over that earning and since everyone took the onus of the risk and in the same way everyone has the authority over the earnings. But when it comes to the Gross Margins achieved or the Gross Profit, the first portion of it goes to the WAKALA fees and not to the portions of the dividends that is to be paid to the stakeholders and whatever risk that has come up and has brought some level of losses, will also be shared among the stakeholder and whatever the decision of the elected leader (by voting), is assumed to be in the best adherence of the Sharia Laws and it is adopted by everyone as it is assumed to the best decision. The part of the earnings that is left at the end is considered to be the earning of the dividends or it is kept with the company and again it is the decision of the people involved in unison and that is how the financial statements are managed in the Takaful Insurance Company Systems and it is evident that it is pretty much different from what is followed by a conventional insurance company.
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