What Is Takaful Insurance & Is It Available In The UK?

Getting insurance is important for protecting you, your family, and the things you love. It can help you cope with any unexpected problems or expenses, and put your mind at rest that you have the financial support you need in case things go wrong with your home, car, travel, or health.

But standard UK insurance policies don’t work for everyone. Many Muslims in the UK believe that typical insurance policies aren’t permissible in Islam, which can bar them from safeguarding themselves. That’s where takaful insurance policies come into play.

Here, you’ll learn all about takaful insurance — what it is, how it works, and how you can use takaful insurance as part of your Islamic finance plan in the UK.

What is takaful insurance?

Takaful insurance is a system similar to a rotating money club. But instead of putting money aside for the future or paying an insurance premium, each member of the circle agrees to guarantee the other members by contributing to a mutual fund.

Unlike a rotating money club, most takaful funds consist of people who don’t know each other. Instead, they use the same takaful business to manage their contributions and payouts.

Like standard insurance, a takaful insurance arrangement will include a policy and contract that includes what’s covered, what isn’t covered, and how long the coverage lasts. Not everyone needs the same coverage, so each person’s contributions and potential payouts are unique.

Why is takaful insurance used?

Takaful insurance allows Muslims to safeguard their property, money, and wellbeing without compromising their beliefs. Because non-takaful insurance policies are usually designed to make a profit, and may include interest-based investments, they’re not always compliant with Sharia law.

Takaful insurers don’t invest the money (or, at least, they don’t generate riba — a haram practice in Islam), and they’re not run for profit. So Muslims can safely contribute to takaful funds and insure themselves in a permissible way.

The principles of takaful insurance

Takaful insurance schemes are set up to:

• Help members cooperate for the security of themselves and their communities.
• Collect a mutual fund based on donations, which are given freely to help others in need.
• Ensure losses and liabilities are spread fairly within the fund’s membership.
• Avoid profiting from others’ misfortune.

How does takaful insurance work?

Most takaful insurance schemes works like this:

1. You choose a business to operate your takaful fund. They’ll be paid a set fee to manage your contributions and payouts.
2. You’ll select the type of insurance you need (the most popular include car insurance, health insurance, home insurance, and travel insurance).
3. You select the coverage you need (such as length, amount, and benefits).
4. You pay an agreed amount on a regular basis (these are known as contributions). If you ever need to claim on your takaful insurance, the money will be paid out to you.

In some cases, a private waqf (endowment) fund can be used for insurance. In these cases, you’ll regularly donate a set amount of money. This money is then distributed to compensate members of the fund when they need to make a claim.

Any money left in the takaful fund at the end of the coverage period can be distributed to each fund member, or be used to reduce future contributions.

Can I get takaful insurance in the UK?

There aren’t many takaful insurance providers in the UK yet. In fact, just one company — NDI Takaful — seems to specialise in this. NDI Takaful is a takaful insurance broker that works with individuals and UK banks to create more opportunities for people to take out takaful insurance policies.

As the Islamic finance sector grows within the UK, expect to see more takaful companies in this space (we’re now seeing more and more banks offer Sharia-compliant mortgages and Sharia-compliant savings accounts). But for the time being, you might find it tricky to get the takaful policy you want in the UK.

How rotating money clubs can help

Some types of insurance — such as car insurance and home insurance — are non-negotiable if you own your own vehicle or home. And since takaful insurance funds aren’t yet widely available in the UK, you may need to stick with standard insurance policies for the time being.

But having an emergency fund you can use if things go pear-shaped and you don’t want to claim on your insurance can be invaluable. For example, an emergency fund is useful if your car breaks down and you need a tow, you get an unexpected bill, or you need to cancel a holiday at short notice. That’s where a rotating money club can help.

Joining a money club can help you put cash aside for emergencies, so you always have a backup plan in case something unexpected happens. And by being part of a community-based club, you’re helping others do the same.

See how Bloom works to help you set up a rotating money club from your phone.