Illustrative content written for a fictional insurer: the advice is general and replaces neither your policy nor a professional.
The idea: mutual help, organised
Takaful is a form of insurance built on mutual help. Instead of buying cover from a company, the insured, known as participants, pool contributions in a fund that belongs to them. When one of them has a claim, the fund pays it.
The word comes from Arabic and means a mutual guarantee. The model meets a specific demand: insurance without interest, with investments that follow Islamic finance principles. The protection itself is the same as under any policy.
What changes is the financial arrangement. Three parties share the roles:
- the participants, who pay into the fund and benefit from it together;
- the participants’ fund, which receives the contributions and pays the claims;
- the operator, here Hima Takaful, which runs the fund for a fee known in advance.
The fund, the operator and the wakala fee
The heart of takaful is keeping the accounts apart. The participants’ fund is not the operator’s money. It has its own books, its own reserves and its own results, and the operator only manages it.
For that work the operator charges a wakala fee, from the Arabic word for an agency mandate. Set in advance for each product, it is taken from each contribution and pays for running things. The rest goes into the fund.
The wakala rate is the first figure to read on a takaful quote: it is the part of your contribution that does not go into the fund.
Investments and mudaraba
The fund’s money does not sit idle. Its reserves are invested in assets that follow Islamic finance principles, which rules out, among other things, anything that earns interest.
The return on those investments is shared under a mudaraba contract. The operator, who brings the management, receives a share of the return agreed in advance. The fund, which brings the capital, keeps the rest. If the investments earn nothing, the operator earns nothing on that side.
So the operator is paid in two ways, both known before you sign: wakala and mudaraba. At Hima, it does not earn more when the fund pays out less.
Surplus and deficit
At the end of the year the fund’s accounts are drawn up: contributions, minus the wakala fee, claims and reinsurance, plus the fund’s share of investment returns.
If it is positive, it is a surplus. Part goes into a reserve for harder years and the rest is distributed to participants. The sharing rule is approved by the Sharia supervisory board. At Hima, it takes each participant’s claims into account:
- a participant with no claim receives a full share, in proportion to their contribution;
- a participant paid less than their contribution receives half a share;
- a participant paid more than their contribution receives nothing that year, having already drawn more from the fund than they put in.
If it is negative, there is a deficit. Participants pay nothing more: the operator lends the fund what is missing as an interest-free loan, known as qard hassan. The fund repays it from the surpluses of later years, before anything else is distributed.
A surplus is never guaranteed. A year can end in deficit without costing you anything extra.
Claims and price
For the policyholder, a takaful claim goes like any other. You report it, a loss adjuster or a medical adviser looks at it if needed, and you are paid according to the cover in your policy. The plans, limits, deductibles and time frames are the same as for the equivalent conventional policy.
So is the price. At Hima, a takaful contribution is worked out on the same risk and with the same rates as the conventional premium: same cover, same amount. The difference is not in what you pay but in where the money goes: a stated share for the operator, and the rest in a common fund whose surplus may come back to you.
Takaful in Algeria
The law opened takaful to insurance companies in 2020, and a decree in 2021 set the terms on which it may be offered. A company can offer takaful either as a dedicated operator or through a takaful window kept apart from its conventional business, with separate accounts.
The framework requires, among other things, separate accounts for the fund and an independent Sharia supervisory board, which reviews each product, its fees and its investments before sale and gives an opinion every year. Hima’s pages call it the compliance board.
In this demonstration, Hima Takaful, its rates and its board are fictional and refer to no real company or board.
What to ask before you choose
- What is the wakala rate on this product, and is it shown on the quote?
- What share of investment returns does the operator take as mudaraba?
- How is the surplus shared, and do my claims reduce my share?
- What happens in a deficit, and is the operator’s advance genuinely interest-free?
- How is the Sharia supervisory board made up, and are its opinions published?
- Are the cover, the limits and the deductibles the same as in the conventional policy?
A serious operator answers every one of these in writing before you sign.
To compare two takaful offers, look at three points: the wakala fee, the mudaraba share and the surplus-sharing rule.
