Takaful: how Sharia-compliant life cover differs from insurance

Last time this section explained what life insurance is: you pay a premium, and if you die while the policy runs, the insurer pays a sum to the people you have named. Ask for a policy in the UAE and you will be offered a second version of that idea, sometimes from the same insurer. It is called takaful — family takaful when it covers people — and it is insurance structured to comply with Islamic law.

The difference is sharing rather than transfer. Conventional insurance moves your risk onto a company, which takes it on and keeps the profit if it has judged you well. In takaful you contribute to a shared fund as a donation, and that fund — legally separate from the company that set it up — pays the claims. The company runs it as a paid agent rather than carrying the risk itself, and invests within sharia rules.

Two things follow that are worth knowing. If the fund ends the year with money left over, that surplus is distributed rather than becoming shareholders' profit — though the regulator has to approve it, and the fund may grant the company a share for managing well. And if the fund runs short, the company lends it the difference interest-free. The cover itself is the same, and both kinds are regulated by the same Central Bank.