Takaful is a type of insurance found in Islamic societies and is based on principles from Sharia, or Islamic religious law. Takaful works in a similar way to traditional insurance, but with an added religious component and with a key difference—instead of a company collecting premiums and paying out claims, Takaful is a social contract that involves members pooling of funds with the goal of collectively guaranteeing protection for all who join.

With Takaful, known as a “mutual guarantee,” members or participants contribute money into a pooled fund and any claims made by participants are paid out of the takaful fund. The aim of takaful is to share risk, rather than passing risk on to a company and gambling on bad luck–a concept that goes back to early Arabs and other Asian and Middle Eastern communities.

Takaful can now provide the same types of coverage that traditional insurance offers, such as life, health, and liability coverage and those services could be used to protect businesses and individuals. In fact, Takaful is able to provide some advantages over conventional insurance such as reduced costs and investment flexibility and the potential to earn profits depending on their performance.

The concept of Takaful began in the early seventh century, but it has become much more popular in recent decades as Muslims have become more religious and socially conscious in their business dealings. By joining a takaful program, Muslims can ensure that their donations, premiums and other contributions go toward ethical investments and businesses.

Takaful is an increasingly popular option for Muslims who want to adhere to their faith's rules while also protecting themselves and their families against life’s unexpected events. Not only does the concept of takaful represent the principles of mutual cooperation and responsibility, but it also reinforces the sense of community for Muslims who join the takaful program.