Although there are some debates among Muslim scholars on the permissibility or otherwise of insurance vis-à-vis the Shariah, the majority of them find the concept of insurance acceptable because of the good it can bring to the society. These scholars however feel that certain modifications need to be made to the insurance contract in order to make it Shariah Compliant.
One fundamental modification is that the premium must be paid on the basis of tabarru’ (or donation). In other words the participants agree to contribute to a common fund to be used to help other participants according to the terms of the takaful contract. With the intention of tabarru’ the insurance transaction becomes valid and permissible from the point of view of Shariah.
In addition to the above modification, the operation of takaful company must also be free from usury (interest) before it can be regarded as Shariah compliant.