Takaful - Meaning of an Insurance Contract

• Insurance is a contract between the insurer and the policyholder.
• The insurer accepts significant insurance risk from the policyholder.
• In return, the insurer agrees to provide compensation if a specified uncertain future event occurs.
• This uncertain future event is known as the insured event.
• The insured event must cause some form of loss, damage, or adverse financial effect to the policyholder.
• The insurer then provides compensation according to the terms and limits of the insurance contract.

Simple Idea

Policyholder faces a risk → Insurer accepts the risk → Insured event occurs → Policyholder suffers a loss → Insurer provides compensation