(Note:
The following comparison is between the conventional life insurance companies of India, Pakistan and the Takaful companies)

Although both insurance and Takaful strive for a common target based on the contractual principles there are some aspects of practical mechanisms whereby both systems stand on their own platforms. Let us see the common factors as well as the exceptional factors between Insurance and Takaful.

Common factors:
• In principle, Islamic system of Takaful embodies the element of shared responsibility, joint indemnity, common interest and solidarity irrespective of religion, cast and creed. The insurance too is based upon the same principles.
• In both Takaful and Insurance, the policy holders would cooperate among themselves for the common good.
• In both Takaful and insurance, it is the money of the policy holders which is used to grow the organization as well as assist the needy.
• The premium paid is not a loan in both systems. It is a kind of refundable donation, intended to divide losses and spread liability according to a community pooling system.
• The element of uncertainty (Gharar) is eliminated in so far as subscription and compensation are concerned in both.
• It does not aim at deriving advantage at the cost of other individuals in both.
• The basic objective of both is to pay for a defined loss from a defined fund.
• Both are essentially a commercial activity. Both have to invest the cumulated amounts of the premiums to generate income for running the administration, paying compensations and for paying profits on maturity if the insured survives till the expiry of his policy.
• The nominee in both is not the absolute beneficiary but a trustee only who is authorised to claim the benefits on behalf of the legal heirs of the deceased.
• In both, the person who claims the benefits over a policy must have an insurable interest on the subject matter
• In both, the parties involve in an insurance policy must have legal capacity to enter into contract.
• Morally as well legally Uberrrimae fidel principle is the most important condition in both. The parties should observe the principle of utmost good faith, honesty and truthfulness in disclosing the actual facts about the life being insured.
• Islamic law of contract binds the insurer to issue a ‘Damaan’ (guarantee) in writing of the undertaking he is liable for. In the conventional insurance too the insurer issues a “policy certificate” mentioning all the details, terms and conditions of the policy. Both the operations are bound by writing only. No oral understanding is acceptable.
• The premium paid to Takaful is not a loan but an Amaana. This is similar to the principle of ‘Al Wadia’ (deposit) whereby two parties engage themselves in an agreement in which one of them deposits money to the other as a trust or ‘Amana’ for the purpose of safe keeping and future safety. The premium paid in the conventional system too is not a loan but deposit with the intention of safe keeping and future safety.