Takaful—the Islamic alternative to conventional insurance—has quietly but steadily been making inroads in Australia’s financial landscape. As more Australians prioritise ethical and community-based financial products, 2025 is shaping up to be a turning point for Takaful in the local market. What makes Takaful different, and why are both Muslim and non-Muslim Australians taking notice?
What is Takaful? A Community Approach to Insurance
Takaful is a cooperative system of insurance rooted in Islamic law (Shariah), where members contribute money into a pool to guarantee each other against loss or damage. Unlike traditional insurance, which relies on risk transfer and profit for shareholders, Takaful operates on the principles of mutual assistance (Ta’awun) and shared responsibility.
- Risk sharing—Participants jointly own the risk pool, and claims are paid from the collective fund.
- Ethical investments—Funds are invested in Shariah-compliant assets, avoiding industries such as alcohol, gambling, and interest-based finance.
- Transparent governance—Takaful providers often involve participants in decision-making and surplus distribution.
For Australia’s 800,000-strong Muslim population and a wider group of ethically-minded consumers, these features are increasingly compelling.
Takaful’s Growing Foothold: Policy Updates and Market Trends in 2025
In the past, Takaful was largely the domain of Southeast Asian and Middle Eastern markets. However, 2025 has seen notable developments in Australia:
- Regulatory recognition—ASIC’s 2024-25 updates now explicitly recognise Takaful structures, allowing licensed providers to offer Shariah-compliant insurance products with greater clarity.
- Product innovation—A handful of local insurers, including partnerships with Malaysian and Gulf-based Takaful firms, now offer family (life), motor, and health Takaful products tailored for Australian needs.
- Tax treatment—The ATO clarified in early 2025 that Takaful contributions are deductible in a manner analogous to conventional insurance premiums for eligible products, removing a key barrier to adoption.
These shifts have seen Takaful policies grow by an estimated 18% year-on-year, according to the Islamic Finance Association of Australia. Major banks are also exploring Takaful-based loan protection insurance as part of their broader ESG (environmental, social, governance) offerings.
Who Chooses Takaful—and Why?
Takaful’s appeal is no longer limited to Muslim households. Australians increasingly cite ethical considerations and distrust of profit-driven insurers as reasons for switching to Takaful. Here’s why it’s resonating:
- Alignment with faith and values—For Muslim Australians, Takaful ensures compliance with religious principles.
- Community focus—Takaful’s surplus-sharing model means excess funds are returned to policyholders or donated to charity, rather than boosting shareholder profits.
- Transparency and fairness—Clear rules on surplus, claims, and investments foster greater trust in the provider-client relationship.
Consider the example of Noor, a Melbourne-based small business owner. After reviewing her options, she switched to a Takaful health policy in 2024, citing transparent claims processes and the knowledge that her premiums wouldn’t fund industries contrary to her values.
Challenges and the Road Ahead
Despite the momentum, Takaful faces hurdles:
- Market education—Many Australians remain unfamiliar with Takaful’s principles and benefits.
- Product range—While offerings are growing, they still lag behind the breadth of conventional insurance products.
- Regulatory adaptation—Ongoing policy refinements are needed to ensure a level playing field and consumer protection.
Yet, with a surging demand for ethical finance and regulatory support, Takaful is poised to play a larger role in Australian insurance in the years ahead.
