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.
The principles of Takaful insurance are as follows:
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.” It is a channel that can allow an individual to make an initiative to help one another and share risks together with providing benefits to ease financial burden between them.