Takaful Insurance is an Insurance system which is not based on the principle of profitability as a basis. It is meant to disseminate the risks among the group of contributors (insured) through compensation which is paid to the injured contributors out of their contribution instead of leaving the injured incurring the loss by himself according to the company's Articles of Association and the condition of the insurance policies provided that may not be contradictory to the glorious Islamic Shari'ah Provisions
Takaful Insurance system is based on the mutual funds concept, where the Insurance Company conducts business on behalf of the policyholders to indemnify them against certain loss or damage that may be inflicted upon any one of them in return of receiving a percentage of the fund’s surplus (if one exists), If there is a deficiency in the Takaful Fund, the Shareholders Fund will give a Qard Al Hasan (interest free loan) to the Takaful Fund to cover deficit, Later, when the deficit disappears and a surplus accrues, the shareholders deduct the loan amount from fund surpluses.
In the Takaful Company every policyholder is a shareholder in it. That means that the shareholders (fund manager) share the profit of the fund (surplus) with the policyholders. (Insured)