What is Takaful?
Takaful is the term which is used to describe an insurance arrangement which is in compliance with Islamic principles or more specifically the Shariah. The concept was implemented in Malaysia with the introduction of the Takaful Act 1984. Now superseded by the Islamic Financial Services Act 2013 
The Act defines Takaful as:
‘An arrangement based on mutual assistance under which takaful participants agrees to contribute to a common fund providing for mutual financial benefits payable to the takaful participants or their beneficiaries on the occurrence of pre-agreed events‘
Shariah Contract Commonly Used in Takaful
A contract of guarantee whereby a person adds to himself a responsibility or liability on behalf of another person .
In takaful business the participant contributes to the Takaful fund by a mutual agreement. Then, takaful operator is entrusted to undertake in managing the takaful fund prudently and to pay the takaful benefits to the participants in the event of misfortune.
According to Malaysian Takaful Association:
‘A portion of participant’s contribution for the purpose of mutual help and used to pay claims submitted by eligible claimants‘ 
The effect of the tabarru’ concept is that, it is the members of the group (or participants) who bear the risk and not the takaful operator. The operator is said to be the custodian of the funds.
Managing it for the benefit of the members. These concepts are consistent with the general principles of Islamic teaching which emphasise the importance of brotherhood among members of the community
A contract of agency. In which a person delegates his business to another and substitute the other in his place. The person delegated is called wakil. Thus both the principal (takaful operator) and wakil are equally bound by each other under contract of wakalah
A contract of hiring for services. In which one party undertakes to pay a specified amount of money for services rendered in accordance with the terms negotiated between them. In takaful business, the participants contribute a sum of money to the takaful fund. The takaful operator is entrusted to manage the takaful fund prudently in terms of investment and pay out takaful benefits to the eligible participant in the event of a misfortune. The takaful operator is entitle to a fee for the services rendered.
It is therefore effectively means that it is an arrangement of mutual help among members of a group who pool their efforts to support the needy amongst them.
- Module 2: Insurance Planning and Estate Planning, Finanical Planning Association Malaysia
- Basic Takaful Practices
- Malaysian Takaful Association