Takaful is a word derived from an Arabic root with the basic sense of mutual assurance or solidarity. It does not translate directly as insurance, and the word has become established only relatively recently as the Islamic equivalent of insurance. The 1976 edition of the Wehr dictionary, the recognised standard Arabic–English dictionary (which mentions in a preface that a new edition was prompted by the great increase in interest in the language brought about by developments in the oil states in the early 1970s, developments which were to be responsible for so much growth in Islamic financial services), translates takaful only as ‘mutual agreement’, with no mention as yet of the technical meaning of ‘insurance’. It is, then, essentially a model of mutual provision, not a profit-making model. Of course, commercial operators are motivated by the desire to make profit from it, and it has not been that easy to develop a form of takaful which generates adequate profit without losing the essence of mutuality, which is what makes it different from conventional insurance.
The basic theoretical difference between takaful and insurance is that rather than paying premiums to the insurance