Short answer
Takaful is Islamic insurance. Members give into a shared fund as donations, and the fund pays those who suffer a loss. Because members help each other rather than buying a promise of payment, scholars accept it as the halal alternative to conventional insurance, provided the fund avoids interest and is run on Shariah terms.
Takaful built on donation (tabarru') or a waqf (endowment) fund, run by an operator for a fee or a share of investment profit, and invested only in halal assets, is permitted. Each product still needs a qualified Shariah board.
The four schools agree on this.
Explanation
The idea is old. The Prophet ﷺ praised the Ash'ari tribe: when food ran short, they gathered everything they had on one cloth and shared it equally, and he said, "They are of me and I am of them." Takaful applies the same mutual help to modern risks, under the Quranic command to cooperate in righteousness (5:2).
How it usually works:
- Members pay contributions into a fund as a donation to help any member who suffers a covered loss.
- An operator runs the fund for a fixed fee (wakalah) or a share of investment profit (mudarabah).
- The fund is invested only in halal assets, never in interest.
- Any surplus belongs to the members: it is returned, carried forward or given to charity.
- In the waqf model, used in Pakistan and elsewhere, the fund is an endowment, and members' donations become part of it.
The key difference from conventional insurance is that the company does not sell you a guarantee in exchange for your premium. The members own the risk pool together, so the gharar of a commercial sale does not arise in the same way, since gharar is tolerated in donations.
Takaful covers general risks (car, home, travel, health) and family takaful covers life. It is common in the UAE, Malaysia and parts of the UK, and harder to find in the US. Some scholars criticise operators that copy conventional practice, so check the Shariah board and the contract. Contemporary scholars of all four schools accept cooperative insurance in principle.
The evidence
Quran, Surah Al-Maaida 5:2
يَٰٓأَيُّهَا ٱلَّذِينَ ءَامَنُوا۟ لَا تُحِلُّوا۟ شَعَٰٓئِرَ ٱللَّهِ وَلَا ٱلشَّهْرَ ٱلْحَرَامَ وَلَا ٱلْهَدْىَ وَلَا ٱلْقَلَٰٓئِدَ وَلَآ ءَآمِّينَ ٱلْبَيْتَ ٱلْحَرَامَ يَبْتَغُونَ فَضْلًۭا مِّن رَّبِّهِمْ وَرِضْوَٰنًۭا ۚ وَإِذَا حَلَلْتُمْ فَٱصْطَادُوا۟ ۚ وَلَا يَجْرِمَنَّكُمْ شَنَـَٔانُ قَوْمٍ أَن صَدُّوكُمْ عَنِ ٱلْمَسْجِدِ ٱلْحَرَامِ أَن تَعْتَدُوا۟ ۘ وَتَعَاوَنُوا۟ عَلَى ٱلْبِرِّ وَٱلتَّقْوَىٰ ۖ وَلَا تَعَاوَنُوا۟ عَلَى ٱلْإِثْمِ وَٱلْعُدْوَٰنِ ۚ وَٱتَّقُوا۟ ٱللَّهَ ۖ إِنَّ ٱللَّهَ شَدِيدُ ٱلْعِقَابِ ﴿٢﴾
O you who have believed, do not violate the rites of Allah or [the sanctity of] the sacred month or [neglect the marking of] the sacrificial animals and garlanding [them] or [violate the safety of] those coming to the Sacred House seeking bounty from their Lord and [His] approval. But when you come out of ihram, then [you may] hunt. And do not let the hatred of a people for having obstructed you from al-Masjid al-Haram lead you to transgress. And cooperate in righteousness and piety, but do not cooperate in sin and aggression. And fear Allah; indeed, Allah is severe in penalty.
Mutual help against hardship is commanded.
Sahih al-Bukhari 2486
Sahih... إن الأشعريين إذا أرملوا في الغزو أو قل طعام عيالهم ...
"When the Ash'aris ran short of food on campaign or at home, they gathered what they had on one cloth and shared it equally; they are of me and I am of them."
Pooling resources to share hardship is praised.
Where the ruling is recorded
- AAOIFI Shari'ah Standards, Standard on Islamic insurance. Sets out the donation-based structure of takaful.
- Resolutions of the International Islamic Fiqh Academy, Resolution on insurance and reinsurance. Approves cooperative insurance as the alternative.
- Mufti Taqi Usmani, Writings on waqf-based takaful. The Hanafi basis for the waqf model.
This answer is pending review by the scholars on our team. Quran translation by Sahih International. Hadith Arabic from the standard editions of the six books and the Muwatta, with gradings as recorded there; the English is our own rendering. Spotted a mistake? Tell us.