Islamic insurance operates under the Islamic principle of Takaful, which means “guaranteeing each other”. It differs from normal insurance as instead of the insurance company taking on all the risk, all the policyholders make an agreement to guarantee each other and all make contributions to a shared pool, instead of paying premiums.
The Islamic banking system is based on faith and has principles from three sources, the Holy Qur’an, the Hadith and the Sunnah.
Muslims are forbidden to give or receive interest on money and must ensure that any stocks and shares they invest in are from ethical companies who do not engage in “cruel or unjust activities”.
~ Prophet Muhammad (May Allah bless him and grant him peace)