A Comparison between the Capitalist and the Islamic Insurance with a Focus on Deficit and Surplus

By

ACKNOWLEDGEMENT

I would like to thank my supervisors, friends and family, without their support this research study would not have been possible.

DECLARATION

I adjudge that the entire content of this dissertation is entirely my own work; the content used in this dissertation has not been submitted before in any educational institution and represents my own opinion.

Signed __________________ Date _________________

ABSTRACT

This study will be aim to compare the Islamic insurance system to the capitalist one. It will go in depth to analyze the problematic aspect of the deficit in the Islamic system, and it will shed light on the surplus idea as well. The study will use the mixed methodology for analyzing two main insurance firms of Saudi Arabia; in order to find out which type of insurance will be best and what improvement steps should be taken.

TABLE OF CONTENTS

ACKNOWLEDGEMENTII

DECLARATIONIII

ABSTRACTIV

CHAPTER 1: INTRODUCTION1

Insurance1

Characteristics of Insurance1

Reasons for buying insurance2

Comparison between Islamic insurance and capitalist insurance2

Islamic insurance3

Risk Capitalist Insurance3

Risk and Takaful5

Difference and similarities between Insurance and Assurance7

Life insurance8

Takaful9

History11

Types of Islamic insurance13

Islamic economic system and insurance (halal and haram concept)14

Insurance is an investment14

Problem Statement15

Aims and Objectives of the Research15

Layout of the Dissertation16

CHAPTER 2: METHODOLOGY17

Introduction17

Research Design17

Research Method and Design Appropriateness17

Mixed Methodology18

REFERENCES19

CHAPTER 1: INTRODUCTION

People in the West today can hardly imagine living without insurance. The Islamic world, however, is still struggling with the legal and philosophical problems connected with accepting or rejecting insurance or several of its aspects.

Insurance

Insurance is a device that has been developed to handle risk. Its primary function is to substitute certainty for uncertainty as regards the economic 'cost of disastrous events. Insurance may be designed more formally as a system under which the insurer, for a consideration usually agreed upon in advance, promises to reimburse the insured or to render services to the insured in the event that certain accidental occurrences result in losses during a given time period (Thomsett 2009, 160)."

"Insurances is the pooling of fortuitous losses by transfer of such risks to insurers who agree to indemnify insured's for such losses, to provide other pecuniary benefits on their occurrence, or to render services connected with the risk (Kadar 2009, 75).”

Characteristics of Insurance

There must be pooling of losses, "so that in the process, average loss is substitutable for actual loss

The compensation must cover an unforeseen loss.

The risk is transferred from the insured to the insurer, who is in a better financial situation.

The victim of the loss (the insured) is compensated for the loss.

The risk must be insurable, and certain requirements have to be fulfilled before it qualifies as one.

Reasons for buying insurance

People buy insurance for two main reasons:

Because of a need for something (food, clothes, import provisions, and so on), or because they want to prepare for a difficult time when fund is needed.

For peace of mind, out of worry for their children, or out of fear.

Comparison between Islamic insurance and capitalist insurance

Insurance is being bought by the person or ...