• Full return if unwilling to continue premium:
Islamic insurance contract binds the insurer to return the premium if the insured is not willing or not in a position to continue paying the premium. The conventional insurance contract binds the insured to pay certain number of premiums otherwise the paid premiums are forfeited. The poor insured suffers double loss i.e. one due to the circumstances, which make him unable to pay further, and secondly, the insurer takes away his hard earned premiums which he has paid so far.

• Investment without interest:
Islamic insurance is free from interest. It is based on the profit sharing financing technique called Al Mudarebah. The insurer invests the cumulated money on profit and loss basis, and yields the profits whereas in the conventional insurance the insurer lends money to the private sector as well as to the state in the form of security, loan, mortgage, finance, etc. and collects a fixed interest. This interest added return is not legitimate to a Muslim living in a Muslim state. (For details, please see the Chapter ‘misconceptions – Riba’)

• Insured gets profit not the bonus:
Islamic insurance contract binds the insurer to share the profit. Since the insurer invests the cumulated amount of premiums, so the yield deserves to be called ‘profit’ whereas in the conventional insurance contract, it is not called profit but ‘bonus’. This is very small share of the actual profit (not more than 10% of the total profit). Point is to be remembered that the bonus is paid only in the life insurance. No profit or bonus is paid in the general insurance except a small discount on renewed policy. The insured sacrifices a large valuable amount only to buy the security, and gets nothing eventually.

• Agent’s commission paid by insurer – not by insured:
In Islamic insurance, the agent gets his commission from the insurer while in the conventional insurance system it is the insured person who pays the commission. Therefore, the premium is less in bank insurance as the bank collects the premium directly from the account without involving any agent. Also, it is seen that the agents offer discount on the premiums as they sacrifice their own share of the commission and share it with the policy buyer. This shows that the commission of the agent is charged to the insured.

• Premium returned in General insurance:
In general insurance of Takaful, in case nothing unexpected happens, the insured gets back the premium in full or part of it with the addition of the profit. In the modern insurance, once the policy matures, the insured gets nothing unless something unexpected happens before the date of maturity.

• Advertising costs:
Due to the enormous competition, the insurers have to use every possible source of advertisement through screen media and paper media. The cost of the advertisement, which is in crores, is deducted from profits. Consequently, on one hand it increases the premium rate and on the other hand the insured loses his margin of profit. In Takaful, insurer is obliged to bear the cost of advertisement. Except the administrative costs, insurer is not authorised to spend as the profit is treated as Amana. The advertisements are for the purpose of introducing the policies, attracting new customers and generating more business. These steps are purely for development and expansion. Therefore, the investors should involve their money instead of involving depositors’ profit.

• Zakat:
In Islamic based insurance, the company pays the Zakat of the insured’s paid premiums as well as on the profit made by the company. The company too pays the Zakat on its own liable income. The Zakat paid on behalf of the insured is deducted from his account. In principle, the amount of Zakat of all the insured is accumulated and used in a more collective and constructive way. This serves the purpose of “Baitul Maal”, which was the first ever social security system.

In the conventional system the insured has to pay his Zakat by himself separately. Since the exact amount of premiums and the bonus is not known to the policy holders, they are not able to pay proper Zakat. Since most of the insured buy the insurance as a saving for the future, they do not remember even to pay Zakat on this amount. As a result, the sum of money he gets at the time of maturity of a policy, is that amount on which the Zakat has not been paid all along the years. Thus the insured is committing sin if a proper account of the Zakat is not maintained all along the years of his insurance policy.

• Distribution of Zakat
Takaful accumulates the Zakat into a large sum and uses collectively to help to a large number of people. In conventional insurance each person pays individually. The amount distributed in bits and pieces does not benefit as many as in the Takaful.