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Life insurance is a contract between an individual (the policyholder) and a life insurance company. In exchange for regular payments (premiums) made by the policyholder during their lifetime, the company guarantees a payout (death benefit) to their designated beneficiaries in the event of their passing.

How did it begin?

The risk of loss from unexpected events is a constant presence in human endeavors. To ease this burden on individuals, a system resembling what we know today as insurance has existed for over two millennia, dating back to at least 215 BC. This concept has taken various forms throughout history, with its roots tracing back to the Arabic word “Kafalah.” Meaning “guaranteeing each other” or “joint guarantee,” Kafalah reflects the community’s core principles of shared responsibility and compensation.

Takaful’s roots lie in ancient Arabia.

It began as a system of shared responsibility among tribes, where those who wronged members of another tribe were obligated to compensate the victims or their families. This principle of collective responsibility eventually spread to other areas of life, like sea trade. Merchants would contribute to a common fund to help any group member who encountered misfortune during their voyages.

Conventional Insurance

They operate quite differently from that of Islam. Insurance companies sell policies and invest in the collected premiums. Their profits go towards their shareholders, who may not be policyholders themselves. This creates a clear separation between those who pay (policyholders) and those who benefit (shareholders). While payouts to policyholders depend on the company’s financial performance, a minimum positive return is usually guaranteed by contract.

But the story doesn’t end there. Let’s delve deeper into life insurance and what happens when life insurance lapses, according to Takaful.

Takaful: What Happens When Life Insurance Lapses?

When an Islamic insurance plan (Takaful) lapses, the outcome depends on your contract’s specific terms and conditions. Here’s a breakdown of the general possibilities:

Surrender Value

Some Takaful plans offer a surrender value. This portion of your contributions may be returned to you if you cancel your policy before a covered event occurs. However, the surrender value might be less than the total amount you’ve paid,  accounting for administrative fees.

Wakalah Account

Takaful operates on a Wakalah (agency) model. Your contributions go into a shared pool, but a portion might also be held in a separate Wakalah account. Depending on the plan, what happens when life insurance lapses? Well, the funds in your Wakalah account might be returned to you.

Compensation for Good Deeds

A key principle of Takaful is the concept of tabarru’ (mutual assistance). Suppose your policy lapses, and no funds are available for a surrender value, or Wakalah account payout. In that case, you might not receive any monetary compensation. However, the good deeds associated with your contributions may still benefit the Takaful community.

Common Reasons for Policy Lapse in Islamic Takaful

In Islamic Takaful, policy lapses can occur for various reasons, impacting participants’ financial protection and security. Let’s explore the common reasons for policy lapse within the Takaful framework:

Financial Hardship

Unexpected financial challenges such as job loss, medical expenses, or debt may make it difficult for participants to fulfill their contribution obligations in Takaful. In times of financial hardship, participants may prioritize essential expenses over Takaful contributions, leading to lapses in coverage. This can leave participants and their beneficiaries exposed to financial risks and uncertainties.

Lack of Awareness

Participants may overlook premium due dates or fail to respond to lapse notifications in Takaful, leading to unintentional policy lapses. This lack of awareness may stem from insufficient communication or understanding of Takaful principles and procedures. Enhancing awareness and education among participants regarding their contribution obligations and the importance of timely payments is crucial for minimizing unintentional lapses.

Changing Needs

Life circumstances such as marriage, divorce, birth of a child, or retirement may necessitate adjustments to insurance coverage in Takaful. Participants may need to increase or decrease their contribution amounts or modify their coverage to align with changing needs and priorities. Failure to update Takaful policies accordingly may result in inadequate coverage or unnecessary lapses, leaving participants and their beneficiaries vulnerable to financial risks.


Poor financial planning or misallocating funds may result in insufficient funds to cover Takaful contributions, leading to policy lapses. Participants may encounter difficulties managing their finances effectively, resulting in missed payments or irregular contribution patterns. Sound financial management practices and budgeting techniques can help participants avoid lapses and actively participate in Takaful.

How to Overcome Policy Lapse in Takaful

How can we address these common problems of what happens when a life insurance policy lapses? By implementing proactive measures to support participants, Islamic Takaful operators can strengthen the integrity and sustainability of the Takaful system while providing participants with the financial protection and security they need.

Seek Assistance

Participants facing financial hardship should contact the Takaful operator or administrator for assistance. Takaful operators may offer flexible payment options or hardship provisions to help participants overcome temporary financial difficulties and avoid lapses.

Increase Awareness

Takaful operators should prioritize education and awareness initiatives to ensure participants understand their contribution obligations and the consequences of policy lapses. Regular communication and outreach efforts can help improve awareness and encourage proactive participation among participants.

Review Coverage Needs

Participants experiencing life changes should review their Takaful coverage and adjust their contribution amounts or coverage levels accordingly. Takaful operators can provide guidance and support to help participants assess their insurance needs and make informed decisions about their coverage.

Impart Financial Literacy

Takaful operators should offer financial literacy programs and resources to help participants improve their financial management skills and make informed decisions about their Takaful contributions. Empowering participants with the knowledge and tools to manage their finances effectively can help prevent lapses and promote long-term financial security.

Understanding Policy Lapse in Takaful

Policy lapse in Takaful occurs when participants fail to fulfill their contribution obligations, leading to the cessation of coverage and benefits. Unlike conventional insurance, Takaful operates on mutual cooperation and shared responsibility, where participants contribute to a common fund to support one another in need.

Implications of What Happens When Life Insurance Policy Lapses in Takaful

Letting your insurance lapse can be a big deal! Not only will you lose coverage during that time, but it can also make it more expensive to get insured again. While you can reinstate a lapsed policy, it may involve additional conditions and fees. To avoid these hassles, consider setting up automatic payments to ensure your coverage stays uninterrupted.

Loss of Coverage

Once your Takaful policy lapses, your coverage ends, leaving you and your loved ones vulnerable to financial hardships in the event of unforeseen circumstances such as illness, disability, or death. However, in Takaful, the concept differs slightly from that of conventional insurance. Instead of a policy contract between the insured and the insurer, Takaful operates on mutual cooperation and shared responsibility principles. Therefore, the loss of coverage affects the individual and the collective pool of participants who contribute to the Takaful fund.

No Payouts

In the event of your demise during the lapse period, beneficiaries won’t receive any death benefits, leaving them financially exposed and potentially burdened with expenses. Similar to conventional insurance, the absence of coverage in Takaful means that the intended financial protection for beneficiaries is unavailable, emphasizing the importance of maintaining active participation to fulfill the mutual obligation of support within the Takaful framework.

Health Reassessment

Reinstating a lapsed Takaful policy may require a new health assessment, possibly resulting in higher premiums if your health condition has deteriorated since the initial policy issuance. However, in Takaful, the premiums paid are considered contributions to a mutual fund rather than payments for insurance coverage. Therefore, the reassessment of health and potential contribution adjustments aims to ensure fairness and sustainability within the Takaful system, reflecting solidarity principles and equitable risk distribution among participants.

While these implications are consistent across both conventional and Islamic insurance, the operational mechanisms and contractual arrangements may vary. In conventional insurance, the relationship is typically between the insured and the insurer, where premiums are paid in exchange for coverage and benefits. In Islamic insurance (Takaful), the relationship is based on mutual cooperation and shared responsibility among participants, with contributions pooled into a mutual fund to benefit those in need. Therefore, while the consequences of policy lapse are similar, the underlying principles and mechanisms may differ between the two types of insurance.

Navigating the Aftermath in Takaful

Navigating the aftermath of a policy lapse in Takaful requires adherence to Sharia principles and proactive engagement with the Takaful community. By understanding the implications of policy lapse and taking timely action to address the situation, participants can uphold the integrity and sustainability of the Takaful system while ensuring continued financial protection for themselves and their beneficiaries.

Prompt Action

Upon receiving lapse notifications, participants should act promptly to address the situation. Contact the Takaful operator or administrator to explore reinstatement options and understand the steps required to resume coverage.

Reinstatement Procedures:

Reinstating a lapsed Takaful policy may involve fulfilling outstanding contribution obligations, paying applicable fees or charges, and reassessing eligibility. Participants should follow the reinstatement procedures outlined by the Takaful operator to ensure timely reinstatement of coverage.

Financial Planning

Participants should prioritize their Takaful contributions within their budget to avoid future lapses. Incorporating contributions into their financial planning ensures continuity of coverage and protection for themselves and their beneficiaries.

Community Support

Engage with the Takaful community and seek support from fellow participants or advisors. Sharing experiences and insights can help navigate the aftermath of a policy lapse and reinforce the principles of mutual cooperation and solidarity within the Takaful framework.

Learning from Khuda Buksh

Khuda Buksh, a pioneer of life insurance in Bangladesh, exemplifies resilience, foresight, and commitment to social welfare that resonates deeply within the context of Islamic Takaful. His pioneering efforts in establishing the first indigenous life insurance company in Bangladesh serve as an inspiration for the development and growth of Takaful Insurance.

Takaful is based on mutual cooperation, shared responsibility, and solidarity. It embodies the Islamic values of social justice and community support, aiming to provide financial protection and security while promoting the well-being of society as a whole. His vision aligns closely with Takaful, emphasizing the importance of financial protection and security and what happens when a life insurance policy lapses.

Khuda Buksh established the first life insurance company in Bangladesh, laying the foundation for an inclusive and equitable insurance industry that prioritizes the community’s needs. He extended the principles of Takaful, where the participants collectively contribute to a common fund to support one another in need. Khuda Buksh’s legacy serves as a reminder of the power of innovation, perseverance, and social responsibility in shaping the future of insurance and financial services. His aura continues to inspire generations of individuals and institutions involved in the Takaful industry, driving them to uphold the principles of fairness, integrity, and compassion, particularly what happens when a life insurance policy lapses.

Khuda Buksh’s Perspective on What Happens When Life Insurance Lapses

While Khuda Buksh’s perspective on what happens when life insurance lapses may not be directly documented, his vision and principles align closely with the ethos of providing financial protection and security to individuals and communities.

From Khuda Buksh’s perspective, a lapse in life insurance coverage would likely be viewed as a significant setback, potentially leaving individuals and their beneficiaries vulnerable to financial risks and uncertainties. He underscored the importance of proactive financial planning and management on what happens when life insurance lapses. Khuda Buksh advocated for education and awareness initiatives to ensure individuals understand the consequences of policy lapses and take necessary steps to prevent them.

While Khuda Buksh’s direct perspective on what happens when life insurance lapses may not be available, his visionary leadership and commitment to social welfare suggest that he would have emphasized the importance of maintaining active insurance coverage and proactive financial planning to mitigate risks and promote financial security for individuals and communities.

Khuda Buksh: The Pioneer of Life Insurance in Bangladesh

Khuda Bush’s story, as written in ‘Khuda Buksh: The Pioneer of Life Insurance in Bangladesh,’ sheds light on his resilience and provides insight into how he laid the foundation for a crucial aspect of financial security for millions.

Advocacy of Khuda Buksh

Khuda Buksh encountered numerous obstacles in promoting the concept of life insurance, compounded by the prevailing socio-economic circumstances. Nonetheless, his persistent endeavors in establishing the Khuda Buksh Oriental Public Library eventually yielded results, prompting a growing awareness of the necessity to safeguard the future of loved ones.

Legacy and Ongoing Significance

Khuda Buksh’s role in advancing life insurance in the subcontinent is a testament to the determination required by visionaries. His pioneering initiatives left an indelible imprint on the region’s financial landscape, illustrating that even amidst adversity, an individual’s vision can plant the seeds of positive transformation, benefiting future generations. Yes, Khuda Buksh faced numerous challenges in popularizing the concept of life insurance, and the prevailing socio-economic conditions made his mission even harder. However, his relentless efforts in establishing the Khuda Buksh Oriental Public Library soon bore fruit, and more people began to recognize the importance of securing the future of their loved ones.

Khuda Buksh: The Pioneer of Life Insurance in Bangladesh’ by Muhammad Obaidur Rahim delves into Khuda Buksh’s relentless efforts to establish a life insurance business amid religious and cultural prejudices. It offers insights into the evolution of the life insurance industry in the subcontinent, highlighting Khuda Buksh’s remarkable journey and enduring impact on financial services.

For those seeking a deeper understanding of life insurance policies and what happens when life insurance policy lapses, exploring Khuda Buksh: The Pioneer of Life Insurance in Bangladesh can provide valuable insights into the industry’s development. By studying Khuda Buksh’s story, readers can gain a greater appreciation for the evolution of life insurance and the pivotal role played by visionary figures like him.

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