When you participate in motor takaful, you contribute a sum of money to a general takaful fund in the form of participative contribution (tabarru'). You undertake a contract (aqad) for you to become one of the participants by agreeing to mutually help each other, should any of the participants suffer a loss because of an accident involving his vehicle. At maturity, you are entitled to a share of the surplus in the general takaful fund, if you did not make any claim during the period of takaful. The surplus will be shared between you and the takaful operator under the concept of surplus-sharing according to a pre-agreed ratio. Example: A takaful operator has a total surplus (S) of RM4 million and total general contribution (GC) of RM10 million. Your contribution (C) for the year is RM1,000 and the surplus will be shared between you and the takaful operator at a pre-agreed sharing ratio (PSR) of 50:50. The share of surplus that you will receive is calculated as follows:
PT Syarikat Takaful Indonesia (the Company) was established on
February 24, 1994 on the initiative of the Establishment Team of
Indonesian Takaful Insurance (TEPATI) and with the full support of
the Indonesian Moslem Scholars Association (ICMI), through Abdi
Bangsa Foundation, Bank Muamalat Indonesia Tbk., Syarikat Takaful
Malaysia Bhd., PT Asuransi Jiwa Tugu Mandiri, Ministry of Finance
of Indonesia, and several other local Moslem entrepreneurs.
During the formation of TEPATI, Syarikat Takaful Malaysia Bhd.
(STM) provided the technical support on the operational aspect,
and consequently went on to become the majority shareholder
after increasing its initial capital in 2001. Takaful Indonesia’s capital
structure was further strengthened with the support of Permodalan
Nasional Madani (PNM), which joined the Company in 2000, and
the Islamic Development Bank (IDB) which joined later in 2004.
Through PT Asuransi Takaful Keluarga and PT Asuransi Takaful
Umum, the two subsidiaries of Takaful Indonesia, the Company
effectively serve the needs of the nation for insurance and financial
management services which conform to the principles of syariah.
PT Asuransi Takaful Keluarga (also known as Takaful Keluarga),
which offers the syariah-based life insurance, was first established
on August 4, 1994 but only began operations on August 25, 1994
when the Company was inaugurated by the then Minister of
Finance, Mr. Mar’ie Muhammad. Subsequently, on June 1, 1995,
PT Asuransi Takaful Umum (also known as Takaful Umum) was
established, focusing on syariah-based general life insurance. It
was officially inaugurated by Prof. Dr. B.J. Habibie, Minister of
Research and Technology/Chairman of the Supervisory Board for
the Evaluation and Implementation of Technology (BPPT) at the
time.
Along its progressive journey, the Company undertook several
restructuring efforts, which had successfully merged the marketing
functions of Takaful Keluarga and Takaful Umum, enabling the
Company to penetrate the insurance industry more effectively
and efficiently.
The Company’s effort to enhance service was further spurred by
it receiving two ISO 9001:2001 certification, one from SGS JASANZ,
New Zealand for Takaful Umum; and another from Det
Norske Veritas (DNV), for Takaful Keluarga.
Clearly, Takaful Indonesia’s commitment as a prominent provider
for syariah insurance was aptly endorsed by the industry, evident
from the several awards bestowed on the Company by various
institutions throughout the year 2007.
Supported by the Company’s robust image, wide range of marketing
networks, as well as sturdy synergy within the group, Takaful
Indonesia is well poised to lead the syariah insurance industry for
years to come.
Generally, there are two types of cover under the motor takaful plan:
Third party – This protects you against the third party’s death, bodily injury and/or property damage.
Comprehensive – This protects you against the third party’s death, bodily injury and/ or property damage; as well as loss and/or damage to your vehicle due to accidental fire, theft or an accident.
Who is a third party?
A third party is a person who is injured or has suffered loss or damage arising from an accident involving your motor vehicle. A third party may be a pedestrian, a driver or passengers in another
vehicle. The first party to a motor takaful plan is you as the vehicle owner and the second party is the takaful operator.
How much should I cover?
Make sure that the amount covered in your motor takaful certificate reflects the market value of your vehicle, i.e. the cost of replacing your vehicle with a similar make, model and condition. If the amount covered is less than the market value, the average condition will apply in the event of a claim. The average condition is a penalty for underinsuring your vehicle. Underinsuring means the sum covered at the time of loss is less than the market value. Example: The sum covered is RM80,000 while the market value of the vehicle is RM100,000 and the loss is RM5,000. The average condition will operate as follows:
The takaful operator will only pay RM4,000 instead of RM5,000 for the loss. You have to bear the difference of RM1,000.
What is a 'no claim discount' (NCD)?
This can be regarded as an incentive to you for not making a claim during the preceding period of motor takaful cover. The discount is given according to the following scale when you renew your certificate:
The NCD can be transferable to another takaful operator/ insurance company or another vehicle that belongs to you.
Third party – This protects you against the third party’s death, bodily injury and/or property damage.
Comprehensive – This protects you against the third party’s death, bodily injury and/ or property damage; as well as loss and/or damage to your vehicle due to accidental fire, theft or an accident.
Who is a third party?
A third party is a person who is injured or has suffered loss or damage arising from an accident involving your motor vehicle. A third party may be a pedestrian, a driver or passengers in another
vehicle. The first party to a motor takaful plan is you as the vehicle owner and the second party is the takaful operator.
How much should I cover?
Make sure that the amount covered in your motor takaful certificate reflects the market value of your vehicle, i.e. the cost of replacing your vehicle with a similar make, model and condition. If the amount covered is less than the market value, the average condition will apply in the event of a claim. The average condition is a penalty for underinsuring your vehicle. Underinsuring means the sum covered at the time of loss is less than the market value. Example: The sum covered is RM80,000 while the market value of the vehicle is RM100,000 and the loss is RM5,000. The average condition will operate as follows:
The takaful operator will only pay RM4,000 instead of RM5,000 for the loss. You have to bear the difference of RM1,000.
What is a 'no claim discount' (NCD)?
This can be regarded as an incentive to you for not making a claim during the preceding period of motor takaful cover. The discount is given according to the following scale when you renew your certificate:
The NCD can be transferable to another takaful operator/ insurance company or another vehicle that belongs to you.
This is an introductory guide to help you understand how motor takaful works. It gives you some basic information so that you can ask your takaful operator the right questions, understand the answers and make the right choice before you participate in any takaful plan.
What is motor takaful?
A motor takaful plan covers you against loss or damage to your own vehicle due to accidental fire, theft or accident; and/or third party bodily injury or death, third party property loss or damage. Cover against third party risks in Malaysia was made compulsory under the Road Transport Act 1987. It is an offence for any person to use or cause or permit any other person to use a motor vehicle without the necessary coverage.
Takaful concept in motor takaful
When you participate in motor takaful, you contribute a sum of money to a general takaful fund in the form of participative contribution (tabarru'). You undertake a contract (aqad) for you to become one of the participants by agreeing to mutually help each other, should any of the participants suffer a loss because of an accident involving his vehicle. At maturity, you are entitled to a share of the surplus in the general takaful fund, if you did not make any claim during the period of takaful. The surplus will be shared between you and the takaful operator under the concept of surplus-sharing according to a pre-agreed ratio. Example: A takaful operator has a total surplus (S) of RM4 million and total general contribution (GC) of RM10 million. Your contribution (C) for the year is RM1,000 and the surplus will be shared between you and the takaful operator at a pre-agreed sharing ratio (PSR) of 50:50. The share of surplus that you will receive is calculated as follows:
What is motor takaful?
A motor takaful plan covers you against loss or damage to your own vehicle due to accidental fire, theft or accident; and/or third party bodily injury or death, third party property loss or damage. Cover against third party risks in Malaysia was made compulsory under the Road Transport Act 1987. It is an offence for any person to use or cause or permit any other person to use a motor vehicle without the necessary coverage.
Takaful concept in motor takaful
When you participate in motor takaful, you contribute a sum of money to a general takaful fund in the form of participative contribution (tabarru'). You undertake a contract (aqad) for you to become one of the participants by agreeing to mutually help each other, should any of the participants suffer a loss because of an accident involving his vehicle. At maturity, you are entitled to a share of the surplus in the general takaful fund, if you did not make any claim during the period of takaful. The surplus will be shared between you and the takaful operator under the concept of surplus-sharing according to a pre-agreed ratio. Example: A takaful operator has a total surplus (S) of RM4 million and total general contribution (GC) of RM10 million. Your contribution (C) for the year is RM1,000 and the surplus will be shared between you and the takaful operator at a pre-agreed sharing ratio (PSR) of 50:50. The share of surplus that you will receive is calculated as follows:
Takaful, or Sharia-compliant insurance, is one of the most dynamic areas of the rapidly expanding market for Islamic financial services. According to a recent report published by Fitch Ratings, total global premium contributions reached $2.6 bn in 2006, and industry analysts estimate that the annual growth of the market may be as high as 40% in the booming GCC and well into double digits in a number of other regions.
Part of that expansion has inevitably been associated with the powerful economic growth rates that have been posted by all oil-exporting nations in recent years, which has bolstered personal disposable income levels and demand for a range of financial services. But much of the expansion can also be attributed to a growing recognition across the Islamic world that although conventional insurance violates Sharia law, Takaful - which is based on the Koranic principle of mutual help—does not. That growing recognition has triggered a virtuous circle, because it has prompted governments in a number of Islamic countries, including Egypt, Saudi Arabia and the UAE, to pass new legislation aimed at promoting an understanding of and a demand for insurance cover. It has also alerted several of the world’s largest insurance companies to the potential of theTakaful market, which has in turn underpinned further growth in the sector. A spokesman for the Central Bank of Bahrain (CBB) pointed to that trend in March2007, when the German insurance giant, Allianz, was awarded a licence to locate its global Takaful hub in Bahrain. “Public perception of life insurance, in particular, has changed considerably with the introduction of takaful and now represents a huge, fairly untapped opportunity,” he said. “The entry of a global insurance player, such as Allianz, in the Takaful arena also points to the tremendous potential of this line of business.”
A significant expansion
The potential is tremendous indeed, and has been recognized by scores of other industry heavyweights. For example, when Prudential of the UK recently signed a Memorandum of Understanding (MOU) with Bank Aljazira of Saudi Arabia to develop the bank’s successful Takaful Ta’awuni life insurance business, it put the potential of the Saudi insurance market into vivid perspective. “The Saudi Arabian insurance market is currently relatively small with an estimated £8oom [$1.56bn] in annual gross premiums, and with more than 70 per cent of this being related to motor, medical and property insurance,” Prudential advised. “However, with GDP per capita now exceeding £6,700 [$13.o65bn], and life insurance penetration of less than one per cent, there is significant room for growth.”
There is equally significant room for expansion elsewhere in the Islamic world. According to data published by Swiss Re, in 2004 life insurance premiums amounted to just 0.28% of GDP in Pakistan and for 3.52% in Malaysia, compared with almost 9% in the UK. But as a number of industry participants have been quick to point out, there is no reason why the sale of well-structured and efficiently managed Takaful products should
be restricted to Muslim-majority countries or even to Muslim customers. As the renaissance in socially responsible investing (SRI) continues to gather momentum across the world, Sharia-compliant products are expected to become increasingly popular among non-Muslim investors and policyholders. In its most recent analysis of the industry, the management consultancy group Oliver Wyman has forecast that as much as 20% of Takaful revenues could ultimately be generated from non-Muslim customers.
Identifying the potential of takaful is, however, one thing. Harnessing that potential in order to maximize the benefits for providers as well as for policyholders and for society at large is quite another, especially given the relative under-development of retail financial services throughout the Islamic world. One consequence of that under-development is that an emphasis on efficient distribution models is likely to be pivotal in determining the winners and losers in the Takaful market going forward. Many of those winners, market analysts believe, will be the products of partnership arrangements between banks and insurance providers (in the form of bancassurance) and specialist investment managers. Leading insurance companies such as Prudential, which has over 2I million customers worldwide, have been in the vanguard of this movement. Prior to the announcement of its joint venture with Bank Aljazira in Saudi Arabia, Prudential emphasized its commitment to the growth of the Takaful market in Malaysia when it launched a joint venture with Bank Simpanan Nasional Bhd (BSN). Set up in 2006, Prudential BSN Takaful Bhd (PBTB) offers “a range of takaful savings, protection and investment products which have been developed with the unique needs of Bumiputra (Muslim Malays), who make up 6o% of the population, in mind.” Specifically, PBTB is focusing on the potential for family and general Takaful products, including investment-linked policies, by leveraging BSN’s very extensive branch network of almost 400 branches and customer base of over 7 million customers nationwide.
Licensed from the state
PBTB was the first of a number of new Takaful ventures to have been licensed by the Malaysian Central Bank, and industry liberalization has also helped the development of the market in the Middle East. In Saudi Arabia, for example, at the end of 2006 the Council of Ministers ended the monopoly of the National Company for Co-Operative Insurance (NCCI) when it awarded licences to 13 new insurance companies. A handful of those are joint ventures focusing on the potential of Islamic insurance, such as Al Ahli Takaful, the largest shareholder in which is National Commercial Bank (NCB), which with over one million customers is Saudi Arabia’s largest commercial bank. NCB is the leading financial asset manager in the Arab world, was the first bank in the Kingdom to offer investment funds, and has 260 branches located throughout Saudi Arabia dedicated to Islamic financial services, meaning that its distribution network is unrivalled. Other shareholders in Al Ahli Takaful include the International Finance Corporation (IFC), the FWU Group and the German insurance company, VHV.
Marketing products?
Another striking example of this partnership-based approach is the Meethaq savings scheme launched recently by Abu Dhabi Commercial Bank (ADCB) in a joint arrangement with the Dubai Islamic Insurance and Reinsurance Company and the Germany-based FWU AG. The Meethaq initiative, which offers individuals access to savings plans linked to Sharia compliant mutual funds, is likely to be an important blueprint for the future evolution in which Takaful products are sold for several reasons. Foremost among these is that it makes Takaful widely accessible to savers throughout the United Arab Emirates (UAE) by putting a strong emphasis on the flexibility of the product, which is offered to all UAE residents aged between 18 and 6o. Savers can choose between a number of mutual funds and participate through monthly subscriptions equivalent to as little as AED 1,000. Contributions, which are deferrable if necessary, can be made on a monthly, quarterly, semi-annual or annual basis, and partial withdrawals are permitted.
One key way in which the Meethaq initiative will serve as an important blueprint for other providers of takaful products is that it has a very clear focus on the delivery of superior investment returns. Marketing products that are religiously acceptable will only represent half the battle for providers of Takaful-linked investments. If those products fail to prove their worth by outperforming local or international benchmarks, they will inevitably fail to attract an extensive customer base, especially in the context of a global bear market where strong returns become increasingly elusive.
As with other joint ventures involving banks such as NCB in Saudi Arabia and BSN in Malaysia, distribution through ADCB’s network of more than 40 local branches is fundamental to the success of the Meethaq product. For banks in a range of other countries with a dense distribution network twinned with a strong local heritage — but not necessarily with any expertise in Islamic finance - an increasingly attractive way of participating in the fast-growing Takaful market has been leverage off their extensive client relationships by white labelling products generated by smaller specialists.
The long term success of the Takaful sector will therefore hinge principally on the distribution capacity of the principal players in the market, which in turn will hinge on the commitment of banks and bancassurance giants - rather than smaller independent agents - to use their very extensive networks to reach a global and highly diversified range of customers.
By Sohail Jaffer, FWU Group
Part of that expansion has inevitably been associated with the powerful economic growth rates that have been posted by all oil-exporting nations in recent years, which has bolstered personal disposable income levels and demand for a range of financial services. But much of the expansion can also be attributed to a growing recognition across the Islamic world that although conventional insurance violates Sharia law, Takaful - which is based on the Koranic principle of mutual help—does not. That growing recognition has triggered a virtuous circle, because it has prompted governments in a number of Islamic countries, including Egypt, Saudi Arabia and the UAE, to pass new legislation aimed at promoting an understanding of and a demand for insurance cover. It has also alerted several of the world’s largest insurance companies to the potential of theTakaful market, which has in turn underpinned further growth in the sector. A spokesman for the Central Bank of Bahrain (CBB) pointed to that trend in March2007, when the German insurance giant, Allianz, was awarded a licence to locate its global Takaful hub in Bahrain. “Public perception of life insurance, in particular, has changed considerably with the introduction of takaful and now represents a huge, fairly untapped opportunity,” he said. “The entry of a global insurance player, such as Allianz, in the Takaful arena also points to the tremendous potential of this line of business.”
A significant expansion
The potential is tremendous indeed, and has been recognized by scores of other industry heavyweights. For example, when Prudential of the UK recently signed a Memorandum of Understanding (MOU) with Bank Aljazira of Saudi Arabia to develop the bank’s successful Takaful Ta’awuni life insurance business, it put the potential of the Saudi insurance market into vivid perspective. “The Saudi Arabian insurance market is currently relatively small with an estimated £8oom [$1.56bn] in annual gross premiums, and with more than 70 per cent of this being related to motor, medical and property insurance,” Prudential advised. “However, with GDP per capita now exceeding £6,700 [$13.o65bn], and life insurance penetration of less than one per cent, there is significant room for growth.”
There is equally significant room for expansion elsewhere in the Islamic world. According to data published by Swiss Re, in 2004 life insurance premiums amounted to just 0.28% of GDP in Pakistan and for 3.52% in Malaysia, compared with almost 9% in the UK. But as a number of industry participants have been quick to point out, there is no reason why the sale of well-structured and efficiently managed Takaful products should
be restricted to Muslim-majority countries or even to Muslim customers. As the renaissance in socially responsible investing (SRI) continues to gather momentum across the world, Sharia-compliant products are expected to become increasingly popular among non-Muslim investors and policyholders. In its most recent analysis of the industry, the management consultancy group Oliver Wyman has forecast that as much as 20% of Takaful revenues could ultimately be generated from non-Muslim customers.
Identifying the potential of takaful is, however, one thing. Harnessing that potential in order to maximize the benefits for providers as well as for policyholders and for society at large is quite another, especially given the relative under-development of retail financial services throughout the Islamic world. One consequence of that under-development is that an emphasis on efficient distribution models is likely to be pivotal in determining the winners and losers in the Takaful market going forward. Many of those winners, market analysts believe, will be the products of partnership arrangements between banks and insurance providers (in the form of bancassurance) and specialist investment managers. Leading insurance companies such as Prudential, which has over 2I million customers worldwide, have been in the vanguard of this movement. Prior to the announcement of its joint venture with Bank Aljazira in Saudi Arabia, Prudential emphasized its commitment to the growth of the Takaful market in Malaysia when it launched a joint venture with Bank Simpanan Nasional Bhd (BSN). Set up in 2006, Prudential BSN Takaful Bhd (PBTB) offers “a range of takaful savings, protection and investment products which have been developed with the unique needs of Bumiputra (Muslim Malays), who make up 6o% of the population, in mind.” Specifically, PBTB is focusing on the potential for family and general Takaful products, including investment-linked policies, by leveraging BSN’s very extensive branch network of almost 400 branches and customer base of over 7 million customers nationwide.
Licensed from the state
PBTB was the first of a number of new Takaful ventures to have been licensed by the Malaysian Central Bank, and industry liberalization has also helped the development of the market in the Middle East. In Saudi Arabia, for example, at the end of 2006 the Council of Ministers ended the monopoly of the National Company for Co-Operative Insurance (NCCI) when it awarded licences to 13 new insurance companies. A handful of those are joint ventures focusing on the potential of Islamic insurance, such as Al Ahli Takaful, the largest shareholder in which is National Commercial Bank (NCB), which with over one million customers is Saudi Arabia’s largest commercial bank. NCB is the leading financial asset manager in the Arab world, was the first bank in the Kingdom to offer investment funds, and has 260 branches located throughout Saudi Arabia dedicated to Islamic financial services, meaning that its distribution network is unrivalled. Other shareholders in Al Ahli Takaful include the International Finance Corporation (IFC), the FWU Group and the German insurance company, VHV.
Marketing products?
Another striking example of this partnership-based approach is the Meethaq savings scheme launched recently by Abu Dhabi Commercial Bank (ADCB) in a joint arrangement with the Dubai Islamic Insurance and Reinsurance Company and the Germany-based FWU AG. The Meethaq initiative, which offers individuals access to savings plans linked to Sharia compliant mutual funds, is likely to be an important blueprint for the future evolution in which Takaful products are sold for several reasons. Foremost among these is that it makes Takaful widely accessible to savers throughout the United Arab Emirates (UAE) by putting a strong emphasis on the flexibility of the product, which is offered to all UAE residents aged between 18 and 6o. Savers can choose between a number of mutual funds and participate through monthly subscriptions equivalent to as little as AED 1,000. Contributions, which are deferrable if necessary, can be made on a monthly, quarterly, semi-annual or annual basis, and partial withdrawals are permitted.
One key way in which the Meethaq initiative will serve as an important blueprint for other providers of takaful products is that it has a very clear focus on the delivery of superior investment returns. Marketing products that are religiously acceptable will only represent half the battle for providers of Takaful-linked investments. If those products fail to prove their worth by outperforming local or international benchmarks, they will inevitably fail to attract an extensive customer base, especially in the context of a global bear market where strong returns become increasingly elusive.
As with other joint ventures involving banks such as NCB in Saudi Arabia and BSN in Malaysia, distribution through ADCB’s network of more than 40 local branches is fundamental to the success of the Meethaq product. For banks in a range of other countries with a dense distribution network twinned with a strong local heritage — but not necessarily with any expertise in Islamic finance - an increasingly attractive way of participating in the fast-growing Takaful market has been leverage off their extensive client relationships by white labelling products generated by smaller specialists.
The long term success of the Takaful sector will therefore hinge principally on the distribution capacity of the principal players in the market, which in turn will hinge on the commitment of banks and bancassurance giants - rather than smaller independent agents - to use their very extensive networks to reach a global and highly diversified range of customers.
By Sohail Jaffer, FWU Group
A family takaful plan is a long-term savings and investment programme with a fixed maturity period. Apart from enjoying investment profit, the plan provides mutual financial assistance among its participants.
The family takaful plan is a financial programme that pools efforts to help the needy in times of need due to untimely death and other mishaps resulting in personal injury or disablement.
The takaful plans designed by the takaful company would enable participants to participate in a takaful scheme with the following aims:
(a) To save regularly;
(b) To invest with a view of earning profits which are Sharia-compliant; and
(c) To avail of cover in the form of payment of takaful benefits to heir(s) should a participant die before the maturity date of his takaful plan.
The operations of family takaful•
A person who participates in any family takaful plan is called a participant. A participant may choose any one of the plans offered by the company. The family takaful plans have a defined period of participation.
The takaful company and the participant will enter into a long-term takaful contract, which is based on the principle of Al-mudharabah (profit-sharing).
The takaful contract spells out clearly the rights and obligations of the parties to the contract. The participant is required to pay regularly the takaful installments in consideration for his participation in the takaful plan.
The participant will decide the amount of takaful installments that he wishes to pay, but such an amount shall be subject to the minimum sum as determined by the company.
Each takaful installment paid by the participant shall be divided and credited by the takaful company into two separate accounts, namely the participant’s account and the participant’s special account. A substantial proportion, for example, such as 93% of this installment is credited into his participant’s account solely for the purpose of his savings and investment.
The balance is credited into his participant’s special account as tabarru’ for the purpose of mutual help.
Mutual financial assistance such as takaful death benefits to fellow participants is paid from the participant’s special account. What proportion of the takaful installment to be relinquished as tabarru’ and credited into the participant’s special account is determined based on sound actuarial principles.
The takaful installment credited into these two accounts will be pooled as a single fund for the purpose of investment activities undertaken by the takaful company in a manner permitted by the Sharia.
Any profits generated from the investment shall be shared between the participant and the company in a ratio to be mutually agreed between the participant and the company in accordance with the contract of Al-Mudharabah. For instance, if the ratio agreed is 7:3 then the participant shall be entitled to 70% of the profits whilst the company shall be entitled to 30%.
The participant’s share of the profits shall be credited into his participant’s account. With the accumulation of such profits, the balance in the participant’s account will increase over a period.
Family takaful benefits
In the event that a participant should die before the maturity of his family takaful plan, the following takaful benefits shall be paid to him:
(i) The total amount of the takaful installments paid by the participant from the date of inception of his takaful plan to the due date of the installment payment prior to his death and his share of profits from the investment of the installments which have been credited into his participant’s account;
(ii) The outstanding takaful installments which would have been paid by the deceased participant should he survive. This outstanding amount is calculated from the date of his death to the date of maturity of his takaful plan which shall be paid from the participant’s special account as agreed upon by all the participants in accordance with the takaful contract.
If a participant survives until the date of maturity of his takaful plan, the following takaful benefits shall be paid to him:
(i) The total amount of takaful installments paid by the participant during the period of his participation plus his share of profits from the investment of the takaful installments credited into his participant’s accounts.
(ii) The net surplus allocated to his participant’s special account as shown in the last valuation of the participant’s special accounts.
In the event that a participant is compelled to surrender or withdraw from the takaful plan before the maturity of his takaful plan, he shall be entitled to the surrender benefits.
The participant is entitled to receive the proportion of his takaful installments that have been credited into the participant’s account including his share of investment profits. However, the amount that has been relinquished as tabarru’ will not be refunded to him.
The various types of family takaful plans available in the market are:
(a) Family takaful plan for education
(b) Family takaful mortgage plan
(c) Group family takaful plan
(d) Group hospitalization and medical benefit
The operations of general takaful
General takaful schemes are basically contracts of joint-guarantee, on a short-term basis (normally one year), between groups of participants to provide mutual compensation in the event of a defined loss.
The schemes are designed to meet the needs for protection of individuals and corporate bodies in relation to material loss or damage resulting from a catastrophe or disaster inflicted upon properties, assets or belongings of participants.
In the event of a catastrophe or disaster resulting in a loss or damage to a property or bodily injuries or other physical disability to a person, the owner of the property or the person concerned may suffer substantial financial losses.
For instance, if a house is destroyed or damaged by fire, the owner would certainly require a sufficient sum of money to repair the house, or rebuild a new one as well as enough money to replace the damaged furniture, fixtures and fitting.
Similarly, a person being injured in an accident would require an adequate sum of money to pay for the medical treatment.
With the various general takaful schemes offered in the market, that person would be assured of takaful benefits in case of misfortune resulting from such loss or damage.
Participants of a general takaful scheme shall also enter into a contract with the company on the basis of the contract of Mudharabah. The contract stipulates the right and obligations of the participants as well as the company.
In consideration for participating in the various schemes, the participants agree to pay the takaful contributions as tabarru’. The company manages the general takaful business including managing the investment of the general takaful fund assets.
As the al-Mudharib, the takaful company will invest the general takaful fund in line with Sharia principles and all returns on the investment will be pooled back to the fund.
In line with the virtues of cooperation, shared responsibilities and mutual help as embodied in the concepts of takaful, the participants agree that the company shall pay from the general takaful fund, compensation or indemnity to fellow participants who have suffered a defined loss upon the occurrence of a catastrophe or disaster.
The fund shall also pay for other operational costs of general takaful business such as for the retakaful arrangements and the setting up of technical reserves.
Should there be a surplus (profits) in the general takaful fund after deducting all the operational costs of general takaful, that surplus will be shared between the participants and the company – provided the participants have not incurred any claims, and that no takaful benefits have been paid to them.
This sharing of the surplus will be in a ratio agreed in accordance with the contract of Al-Mudharabah. If the ratio agreed is 6:4, then 60% of the surplus will be shared among such participants whilst the balance 40% is the share of the company.
(Source: The Star, Malaysia, Contributed by Bank Negara Malaysia.)
The family takaful plan is a financial programme that pools efforts to help the needy in times of need due to untimely death and other mishaps resulting in personal injury or disablement.
The takaful plans designed by the takaful company would enable participants to participate in a takaful scheme with the following aims:
(a) To save regularly;
(b) To invest with a view of earning profits which are Sharia-compliant; and
(c) To avail of cover in the form of payment of takaful benefits to heir(s) should a participant die before the maturity date of his takaful plan.
The operations of family takaful•
A person who participates in any family takaful plan is called a participant. A participant may choose any one of the plans offered by the company. The family takaful plans have a defined period of participation.
The takaful company and the participant will enter into a long-term takaful contract, which is based on the principle of Al-mudharabah (profit-sharing).
The takaful contract spells out clearly the rights and obligations of the parties to the contract. The participant is required to pay regularly the takaful installments in consideration for his participation in the takaful plan.
The participant will decide the amount of takaful installments that he wishes to pay, but such an amount shall be subject to the minimum sum as determined by the company.
Each takaful installment paid by the participant shall be divided and credited by the takaful company into two separate accounts, namely the participant’s account and the participant’s special account. A substantial proportion, for example, such as 93% of this installment is credited into his participant’s account solely for the purpose of his savings and investment.
The balance is credited into his participant’s special account as tabarru’ for the purpose of mutual help.
Mutual financial assistance such as takaful death benefits to fellow participants is paid from the participant’s special account. What proportion of the takaful installment to be relinquished as tabarru’ and credited into the participant’s special account is determined based on sound actuarial principles.
The takaful installment credited into these two accounts will be pooled as a single fund for the purpose of investment activities undertaken by the takaful company in a manner permitted by the Sharia.
Any profits generated from the investment shall be shared between the participant and the company in a ratio to be mutually agreed between the participant and the company in accordance with the contract of Al-Mudharabah. For instance, if the ratio agreed is 7:3 then the participant shall be entitled to 70% of the profits whilst the company shall be entitled to 30%.
The participant’s share of the profits shall be credited into his participant’s account. With the accumulation of such profits, the balance in the participant’s account will increase over a period.
Family takaful benefits
In the event that a participant should die before the maturity of his family takaful plan, the following takaful benefits shall be paid to him:
(i) The total amount of the takaful installments paid by the participant from the date of inception of his takaful plan to the due date of the installment payment prior to his death and his share of profits from the investment of the installments which have been credited into his participant’s account;
(ii) The outstanding takaful installments which would have been paid by the deceased participant should he survive. This outstanding amount is calculated from the date of his death to the date of maturity of his takaful plan which shall be paid from the participant’s special account as agreed upon by all the participants in accordance with the takaful contract.
If a participant survives until the date of maturity of his takaful plan, the following takaful benefits shall be paid to him:
(i) The total amount of takaful installments paid by the participant during the period of his participation plus his share of profits from the investment of the takaful installments credited into his participant’s accounts.
(ii) The net surplus allocated to his participant’s special account as shown in the last valuation of the participant’s special accounts.
In the event that a participant is compelled to surrender or withdraw from the takaful plan before the maturity of his takaful plan, he shall be entitled to the surrender benefits.
The participant is entitled to receive the proportion of his takaful installments that have been credited into the participant’s account including his share of investment profits. However, the amount that has been relinquished as tabarru’ will not be refunded to him.
The various types of family takaful plans available in the market are:
(a) Family takaful plan for education
(b) Family takaful mortgage plan
(c) Group family takaful plan
(d) Group hospitalization and medical benefit
The operations of general takaful
General takaful schemes are basically contracts of joint-guarantee, on a short-term basis (normally one year), between groups of participants to provide mutual compensation in the event of a defined loss.
The schemes are designed to meet the needs for protection of individuals and corporate bodies in relation to material loss or damage resulting from a catastrophe or disaster inflicted upon properties, assets or belongings of participants.
In the event of a catastrophe or disaster resulting in a loss or damage to a property or bodily injuries or other physical disability to a person, the owner of the property or the person concerned may suffer substantial financial losses.
For instance, if a house is destroyed or damaged by fire, the owner would certainly require a sufficient sum of money to repair the house, or rebuild a new one as well as enough money to replace the damaged furniture, fixtures and fitting.
Similarly, a person being injured in an accident would require an adequate sum of money to pay for the medical treatment.
With the various general takaful schemes offered in the market, that person would be assured of takaful benefits in case of misfortune resulting from such loss or damage.
Participants of a general takaful scheme shall also enter into a contract with the company on the basis of the contract of Mudharabah. The contract stipulates the right and obligations of the participants as well as the company.
In consideration for participating in the various schemes, the participants agree to pay the takaful contributions as tabarru’. The company manages the general takaful business including managing the investment of the general takaful fund assets.
As the al-Mudharib, the takaful company will invest the general takaful fund in line with Sharia principles and all returns on the investment will be pooled back to the fund.
In line with the virtues of cooperation, shared responsibilities and mutual help as embodied in the concepts of takaful, the participants agree that the company shall pay from the general takaful fund, compensation or indemnity to fellow participants who have suffered a defined loss upon the occurrence of a catastrophe or disaster.
The fund shall also pay for other operational costs of general takaful business such as for the retakaful arrangements and the setting up of technical reserves.
Should there be a surplus (profits) in the general takaful fund after deducting all the operational costs of general takaful, that surplus will be shared between the participants and the company – provided the participants have not incurred any claims, and that no takaful benefits have been paid to them.
This sharing of the surplus will be in a ratio agreed in accordance with the contract of Al-Mudharabah. If the ratio agreed is 6:4, then 60% of the surplus will be shared among such participants whilst the balance 40% is the share of the company.
(Source: The Star, Malaysia, Contributed by Bank Negara Malaysia.)
Introduction
This is an introductory guide to help you understand how personal accident takaful works. It gives you some basic information so that you can ask your takaful operator the right questions, understand the answers and make the right choice before you participate in a takaful plan.
What is personal accident (PA) takaful?
A PA takaful is an annual plan that provides compensation in the event of death, disablement or injuries arising from an accident. PA takaful is also available for short durations to cover you should any accident occur during your travel period. Cover for PA takaful is provided in respect of accidents occurring anywhere in the world, 24 hours a day, subject to the terms and conditions mentioned in the certificate.
Takaful concept in PA takaful
When you participate in a PA takaful, you contribute a sum of money to a general takaful fund in the form of participative contribution (tabarru’). Contractually, all participants mutually agree to help each other, should any of the participants meet with an accident resulting in death, disablement or injuries.
If you do not make any claim during the period of takaful, at maturity you are entitled to a share of the surplus in the general takaful fund. The surplus will be shared between you and the takaful operator under the concept of surplus-sharing at a pre-agreed ratio.
Scope of cover
The basic cover of a PA takaful includes death and disablement arising from accidents. In addition to the basic cover, takaful operators may also provide coverage on medical expenses, hospitalisation benefits, corrective surgery and funeral expenses. The scope of cover varies between takaful operators. You are advised to participate in a plan that meets your requirements.
You can either participate in a PA takaful for yourself or group plan for your family. Employers can participate in PA takaful for their employees and in such cases, payment of compensation to the employees is at the discretion of the employer. Certain PA takaful plans specify the range of age limits that can be covered.
Exclusions
PA takaful will usually not cover accidents caused by the following events:
• war risks
• suicide and insanity
• self -inflicted injury
• influenced by liquor, drugs or narcotics
• AIDS/HIV or any other venereal diseases
• provoked murder or assault
• childbirth, pregnancy or miscarriage
• involvement in unlawful activities
• hazardous sports
• operating or riding a two-wheel motor vehicle
In addition, it is quite common for PA takaful to also exclude persons employed under the following professions:
• police/ military and law enforcement officers
• divers
• pilots or crew members
• aircraft testers
• racing drivers
• seamen and sea fishermen
• professional sports person
Please note that the above may vary between takaful operators.
Important points to note when participating in PA takaful
• Scale of benefits
The scale of benefits refers to the amount of compensation payable by the takaful operator in the event of death, disablement or injury. You are advised to note the scale of benefits in the plan as these varies between takaful operators
• Multiple coverage
If you have more than one PA takaful or insurance, in the event of your death or disablement, you or your beneficiary will be entitled to compensation under each plan. However, for certain losses such as medical expenses where compensation are on reimbursement basis, you will only be compensated once, based on the actual loss suffered.
• Beneficiary
You are advised to nominate a beneficiary and ensure that your beneficiary is aware of the PA takaful that you have participated.
How to make a claim?
Death claim
In the event of death, a police report must be made and the takaful operator must be notified as soon as possible. The claimant will be given a claim form which should be submitted together with supporting documents required by the takaful operator such as death certificate and burial permit. If there is no beneficiary nominated, the dependents of the deceased or the executor of the deceased’s estate should provide proof of dependency or letter of administration.
Injury claim
You must notify the takaful operator of the injury in writing within the time frame stipulated in the PA takaful certificate. You should submit the claim form with supporting documents such as medical reports and receipts of payment for the hospital expenses to your takaful operator. You will be compensated for benefits under the plan if the treatment is obtained or diagnosis is made within the specified time frame from the date of accident.
This is an introductory guide to help you understand how personal accident takaful works. It gives you some basic information so that you can ask your takaful operator the right questions, understand the answers and make the right choice before you participate in a takaful plan.
What is personal accident (PA) takaful?
A PA takaful is an annual plan that provides compensation in the event of death, disablement or injuries arising from an accident. PA takaful is also available for short durations to cover you should any accident occur during your travel period. Cover for PA takaful is provided in respect of accidents occurring anywhere in the world, 24 hours a day, subject to the terms and conditions mentioned in the certificate.
Takaful concept in PA takaful
When you participate in a PA takaful, you contribute a sum of money to a general takaful fund in the form of participative contribution (tabarru’). Contractually, all participants mutually agree to help each other, should any of the participants meet with an accident resulting in death, disablement or injuries.
If you do not make any claim during the period of takaful, at maturity you are entitled to a share of the surplus in the general takaful fund. The surplus will be shared between you and the takaful operator under the concept of surplus-sharing at a pre-agreed ratio.
Scope of cover
The basic cover of a PA takaful includes death and disablement arising from accidents. In addition to the basic cover, takaful operators may also provide coverage on medical expenses, hospitalisation benefits, corrective surgery and funeral expenses. The scope of cover varies between takaful operators. You are advised to participate in a plan that meets your requirements.
You can either participate in a PA takaful for yourself or group plan for your family. Employers can participate in PA takaful for their employees and in such cases, payment of compensation to the employees is at the discretion of the employer. Certain PA takaful plans specify the range of age limits that can be covered.
Exclusions
PA takaful will usually not cover accidents caused by the following events:
• war risks
• suicide and insanity
• self -inflicted injury
• influenced by liquor, drugs or narcotics
• AIDS/HIV or any other venereal diseases
• provoked murder or assault
• childbirth, pregnancy or miscarriage
• involvement in unlawful activities
• hazardous sports
• operating or riding a two-wheel motor vehicle
In addition, it is quite common for PA takaful to also exclude persons employed under the following professions:
• police/ military and law enforcement officers
• divers
• pilots or crew members
• aircraft testers
• racing drivers
• seamen and sea fishermen
• professional sports person
Please note that the above may vary between takaful operators.
Important points to note when participating in PA takaful
• Scale of benefits
The scale of benefits refers to the amount of compensation payable by the takaful operator in the event of death, disablement or injury. You are advised to note the scale of benefits in the plan as these varies between takaful operators
• Multiple coverage
If you have more than one PA takaful or insurance, in the event of your death or disablement, you or your beneficiary will be entitled to compensation under each plan. However, for certain losses such as medical expenses where compensation are on reimbursement basis, you will only be compensated once, based on the actual loss suffered.
• Beneficiary
You are advised to nominate a beneficiary and ensure that your beneficiary is aware of the PA takaful that you have participated.
How to make a claim?
Death claim
In the event of death, a police report must be made and the takaful operator must be notified as soon as possible. The claimant will be given a claim form which should be submitted together with supporting documents required by the takaful operator such as death certificate and burial permit. If there is no beneficiary nominated, the dependents of the deceased or the executor of the deceased’s estate should provide proof of dependency or letter of administration.
Injury claim
You must notify the takaful operator of the injury in writing within the time frame stipulated in the PA takaful certificate. You should submit the claim form with supporting documents such as medical reports and receipts of payment for the hospital expenses to your takaful operator. You will be compensated for benefits under the plan if the treatment is obtained or diagnosis is made within the specified time frame from the date of accident.
Literally, takaful means mutual guarante; joint guarantee and coperaton and these are the hallmarks of this scheme. This concept empbodies the principles of cooperation, mutual help and shared responsibility. The Takaful Act 1984 of Malaysia definens takaful as a scheme based on brotherhoood, solidarity and mutual assistence which provides for mutual financal aid and asssistence to the participants in case of need, whereby the participants mutually agree to contribute for that purpose.
Takaful is characterised by theree aspects of mutuallity, namely, mutual help, mutual responsibility and mutual protection form losses. The “insurance” that is provided is not dispensed by one party (the insurer) to another (the insured). The person seeking protection participates in a scheme of cooperation with another. The Syarikat Takaful (takaful Company) that runs the scheme is not the insurer but is merely and institution which provides the entrepreneurial and administrative skills required to bring the participants together, to collect and invest the contribution and to process the claims. Therefore, this scheme can be seen as a method of joint guarantee among a group of members, that is, participants in any scheme against loss or damage that may fall upon any of them. The member of the group agree to guarante jointly that should any of them suffer a catastrophe or disaster, he would receive a certain some of money to help hi meet the loss or damage. This means
This means that participants pledge mutual help amongst the group pools effort to support the needy.
In the practice of Syarikat Takaful Berhad (STMB), the concept of Takaful has been developed as a form of business and the principle of mudarabah has been applied in the contract of takaful based on the principle of muarabah, Syarikat Takaful acts as an entrepreneur or investor (mudarib) and accepts takaful contributions or payment of the takaful instalments termed as ra’s al-mal (capital) form participants, who are treated as investor or providers of capital (sahib al-mal)
The takaful contract which is made in accordance with the principle of muarabah specfies how the profit (surplus) from the operations of takaful managed by Syarikat Takaful is to be shared between the participants as the providers of the capital and Syarikat Takaful (company) as the enterpreneur (investor). The sharing of such profit may be in a ratio of for example, 5:5, 6:4, 4, 7:3, et cetera as mutually agreed between the contracting parties. The contract also clearly states the right and obligations of both the participants and the Syarikat Takaful.
Takaful is characterised by theree aspects of mutuallity, namely, mutual help, mutual responsibility and mutual protection form losses. The “insurance” that is provided is not dispensed by one party (the insurer) to another (the insured). The person seeking protection participates in a scheme of cooperation with another. The Syarikat Takaful (takaful Company) that runs the scheme is not the insurer but is merely and institution which provides the entrepreneurial and administrative skills required to bring the participants together, to collect and invest the contribution and to process the claims. Therefore, this scheme can be seen as a method of joint guarantee among a group of members, that is, participants in any scheme against loss or damage that may fall upon any of them. The member of the group agree to guarante jointly that should any of them suffer a catastrophe or disaster, he would receive a certain some of money to help hi meet the loss or damage. This means
This means that participants pledge mutual help amongst the group pools effort to support the needy.
In the practice of Syarikat Takaful Berhad (STMB), the concept of Takaful has been developed as a form of business and the principle of mudarabah has been applied in the contract of takaful based on the principle of muarabah, Syarikat Takaful acts as an entrepreneur or investor (mudarib) and accepts takaful contributions or payment of the takaful instalments termed as ra’s al-mal (capital) form participants, who are treated as investor or providers of capital (sahib al-mal)
The takaful contract which is made in accordance with the principle of muarabah specfies how the profit (surplus) from the operations of takaful managed by Syarikat Takaful is to be shared between the participants as the providers of the capital and Syarikat Takaful (company) as the enterpreneur (investor). The sharing of such profit may be in a ratio of for example, 5:5, 6:4, 4, 7:3, et cetera as mutually agreed between the contracting parties. The contract also clearly states the right and obligations of both the participants and the Syarikat Takaful.
Australia
Australia Takaful Association Inc
Bangladesh
Islami Insurance Company Ltd Bangladesh
Bahamas
Islamic Takafol & Retakafol (Bahamas)
Bahrain
Al-Salam Islamic Takaful Company
Islamic Insurance & Re-Insurance Co (IIRCO)
Takaful International Company (Formerly Bahrain Islamic Insurance Co.)
Takafol Islamic Insurance Co. EC
Brunei
Insurance Islam Taib Sendiran Berhad (IITSB)
Takafol Ab Birhad
Ghana
Metropolitan Insurance Company Ltd
Indonesia
PT Asuransi Takaful Keluarga
PT Asuransi Takaful Umum
Takaful Asuransi
PT Syarikat Takaful Indonesia
Jordan
Islamic Insurance Company Plc
Luxembourg
Takafol S.A
Malaysia
Asean Retakaful International (L) Ltd
The Malaysian Insurance Institute
Syakirat Takaful Malaysia, SDN BHJ
Takaful Nasional Anda
Saudi Arabia
International Islamic Insurance Co
Islamic Arab Company for Insurance
Islamic Arab Insurance Co. (Dallah Al Barka Group)
Islamic Insurance Co. Ltd, Riyadh
Islamic Insurance & Reinsurance Co
Islamic International Company for Insurance (Salamat)
Islamic Rajhi Co. for Co-operative Insurance (Al-Aman)
Islamic Takafol & Retakafol Company
National Company for co-operative Insurance
Takafol Islamic Company, Riyadh
Arab Eastern Insurance Co. Ltd, E.C (Registered in Bahrain), Jeddah
Bank Aljazira Takaful Ta'awuni Operation
Singapore
AMPRO Singapore
Keppel Insurance
Syarikat Takaful Singapura
Senegal
Sosar Al Amane (Al Baraka Group)
Sudan
The National Reinsurance Company (Sudan) Ltd
The United Insurance Company (Sudan) Ltd
Watania Co-operative Insurance Co
Trinidad & Tobago
Takaful T&T
Tunisia
B.E.S.T –RE
Turkey
hlas Sigorta As
Qatar
Qatar Islamic Insurance Co
Oman Inurance Company, Dubai
United Kingdom
Takafol UK
United States of America
Takaful USA
Australia Takaful Association Inc
Bangladesh
Islami Insurance Company Ltd Bangladesh
Bahamas
Islamic Takafol & Retakafol (Bahamas)
Bahrain
Al-Salam Islamic Takaful Company
Islamic Insurance & Re-Insurance Co (IIRCO)
Takaful International Company (Formerly Bahrain Islamic Insurance Co.)
Takafol Islamic Insurance Co. EC
Brunei
Insurance Islam Taib Sendiran Berhad (IITSB)
Takafol Ab Birhad
Ghana
Metropolitan Insurance Company Ltd
Indonesia
PT Asuransi Takaful Keluarga
PT Asuransi Takaful Umum
Takaful Asuransi
PT Syarikat Takaful Indonesia
Jordan
Islamic Insurance Company Plc
Luxembourg
Takafol S.A
Malaysia
Asean Retakaful International (L) Ltd
The Malaysian Insurance Institute
Syakirat Takaful Malaysia, SDN BHJ
Takaful Nasional Anda
Saudi Arabia
International Islamic Insurance Co
Islamic Arab Company for Insurance
Islamic Arab Insurance Co. (Dallah Al Barka Group)
Islamic Insurance Co. Ltd, Riyadh
Islamic Insurance & Reinsurance Co
Islamic International Company for Insurance (Salamat)
Islamic Rajhi Co. for Co-operative Insurance (Al-Aman)
Islamic Takafol & Retakafol Company
National Company for co-operative Insurance
Takafol Islamic Company, Riyadh
Arab Eastern Insurance Co. Ltd, E.C (Registered in Bahrain), Jeddah
Bank Aljazira Takaful Ta'awuni Operation
Singapore
AMPRO Singapore
Keppel Insurance
Syarikat Takaful Singapura
Senegal
Sosar Al Amane (Al Baraka Group)
Sudan
The National Reinsurance Company (Sudan) Ltd
The United Insurance Company (Sudan) Ltd
Watania Co-operative Insurance Co
Trinidad & Tobago
Takaful T&T
Tunisia
B.E.S.T –RE
Turkey
hlas Sigorta As
Qatar
Qatar Islamic Insurance Co
Oman Inurance Company, Dubai
United Kingdom
Takafol UK
United States of America
Takaful USA
Takaful is an Islamic insurance concept which is grounded in Islamic muamalat (banking transactions), observing the rules and regulations of Islamic law. This concept has been practised in various forms for over 1400 years. Muslim jurists acknowledge that the basis of shared responsibility in the system of aquila as practised between Muslims of Mecca and Medina laid the foundation of mutual insurance.
Takaful is founded on the cooperative principle and on the principle of separation between the funds and operations of shareholders, thus passing the ownership of the Takaful (Insurance) fund and operations to the policyholders.
The premiums collected from the policyholders are considered as donations and they constitute the Takaful fund from which all claims are reimbursed.
At the end of each financial year, after deduction of expenses, any remaining cash surplus will not be retained by the company or its shareholders, but returned to the policyholders in the form of cash dividends or distributions.
In this respect, Takaful business is different from the conventional insurance in which the policyholders, rather than the shareholders, solely benefit from the profits generated from the Takaful and Investment assets.
The Investment assets representing the Takaful fund that accumulate over the retained reserves, surpluses and provisions are invested by the shareholders who manage the company on behalf of the policyholders. The shareholders are rewarded with a percentage of the profit on these investments.
Islamic References to Takaful
These fundamentals are based on the sayings of the Islamic prophet Mohammed. Based on the hadith and Quranic verses mentioned below, Islamic scholars had decided that there should be a concerted effort to implement the Takaful concept as the best way to resolve these needs. Some of the examples are:
* Basis of Co-operation Help one another in al-Birr and in al-Taqwa (virtue, righteousness and piety): but do not help one another in sin and transgression. (Surah Al-Maidah, Verse 2)[2]
* Allah will always help His servant for as long as he helps others. (Narrated by Imam Ahmad bin Hanbal and Imam Abu Daud)
* Basis of Responsibility The place of relationships and feelings of people with faith, between each other, is just like the body; when one of its parts is afflicted with pain, then the rest of the body will be affected. (Narrated by Imam al-Bukhari and Imam Muslim)
* One true Muslim (Mu’min) and another true Muslim (Mu’min) is just like a building whereby every part in it strengthens the other part. (Narrated by Imam al-Bukhari and Imam Muslim)
* Basis of Mutual Protection By my life, which is in Allah’s power, nobody will enter Paradise if he does not protect his neighbour who is in distress. (Narrated by Imam Ahmad bin Hanbal)
“The basic fundamentals underlying the Takaful concept are very similar to co-operative and mutual principles, to the extent that the co-operative and mutual model is one that is accepted under Islamic Law."
* " Some Muslims believe insurance is unnecessary, as society should help its victims. Muslims can no longer ignore the fact that they live, trade and communicate with open global systems, and they can no longer ignore the need for banking and insurance. Aly Khorshid demonstrates how initial clerical apprehensions were overcome to create pioneering Muslim-friendly banking systems, and applies the lessons learnt to a workable insurance framework by which Muslims can compete with non-Muslims in business and have cover in daily life. The book uses relevant Quranic and Sunnah extracts, and the arguments of pro- and anti-insurance jurists to arrive at its conclusion that Muslims can enjoy the peace of mind and equity of an Islamic insurance scheme."
[edit] Principles of Takaful
The principles of Takaful are as follows:
* Policyholders cooperate among themselves for their common good.
* Every policyholder pays his subscription to help those that need assistance.
* Losses are divided and liabilities spread according to the community pooling system.
* Uncertainty is eliminated in respect of subscription and compensation.
* It does not derive advantage at the cost of others.
Theoretically, Takaful is perceived as cooperative insurance, where members contribute a certain sum of money to a common pool. The purpose of this system is not profits but to uphold the principle of "bear ye one another's burden." Commercial insurance is strictly not allowed for Muslims as agreed upon by most contemporary scholars because it contains the following elements: i) Al-Gharar (Uncertainty) ii) Al-Maisir (Gambling) iii) Riba (Interest)
There are three (3) models and several variations on how takaful can be implemented.
1. Mudharabah Model
2. Wakalah Model
3. Combination of both
[edit] Islamic Insurance
A book by Dr Aly Khorshid "Islamic insurance, with modern approach to Islamic Banking" Some Muslims believe insurance is unnecessary, as society should help its victims. Muslims can no longer ignore the fact that they live, trade and communicate with open global systems, and they can no longer ignore the need for banking and insurance. Aly Khorshid demonstrates how initial clerical apprehensions were overcome to create pioneering Muslim-friendly banking systems, and applies the lessons learnt to a workable insurance framework by which Muslims can compete with non-Muslims in business and have cover in daily life. The book uses relevant Quranic and Sunnah extracts, and the arguments of pro- and anti-insurance jurists to arrive at its conclusion that Muslims can enjoy the peace of mind and equity of an Islamic insurance scheme.
[edit] The Mudharabah Model (Profit Sharing)
By this principle, the entrepreneur or al-Mudharib (takaful operator) will accept payment of the takaful installments or takaful contributions (premium) termed as Ra's-ul-Mal from investors or providers of capital or fund (takaful participants) acting as Sahib-ul-Mal. The contract specifies how the profit (surplus) from the operations of takaful managed by the takaful operator is to be shared, in accordance with the principle of al-Mudharabah, between the participants as the providers of capital and the takaful operator as the entrepreneur. The sharing of such profit may be in a ratio 50:50, 60:40, 70:30, etc. as mutually agreed between the contracting parties.
In order to eliminate the element of uncertainty in the takaful contract, the concept of tabarru (to donate, to contribute, to give away) is incorporated. In relation to this a participant shall agree to relinquish as tabarru, certain proportion of his takaful installments or takaful contributions that he agrees or undertakes to pay thus enabling him to fulfill his obligation of mutual help and joint guarantee should any of his fellow participants suffer a defined loss.
In essence, tabarru would enable the participants to perform their deeds in sincerely assisting fellow participants who might suffer a loss or damage due to a catastrophe or disaster. The sharing of profit or surplus that may emerge from the operations of takaful, is made only after the obligation of assisting the fellow participants has been fulfilled. It is imperative, therefore, for a takaful operator to maintain adequate assets of the defined funds under its care whilst simultaneously striving prudently to ensure the funds are sufficiently protected against undue over-exposure. Therefore the provision of insurance cover as a form of business in conformity with Shariah is based on the Islamic principles of al-Takaful and al-Mudharabah.
Al-Hari Rayais the pact among a group of people, called participants, reciprocally guaranteeing each other; while Al-Mudharabah is the commercial profit-sharing contract between the provider or providers of funds for a business venture and the entrepreneur who actually conducts the business. The operation of takaful may thus be envisaged as the profit-sharing business venture between the takaful operator and the indi
Takaful is founded on the cooperative principle and on the principle of separation between the funds and operations of shareholders, thus passing the ownership of the Takaful (Insurance) fund and operations to the policyholders.
The premiums collected from the policyholders are considered as donations and they constitute the Takaful fund from which all claims are reimbursed.
At the end of each financial year, after deduction of expenses, any remaining cash surplus will not be retained by the company or its shareholders, but returned to the policyholders in the form of cash dividends or distributions.
In this respect, Takaful business is different from the conventional insurance in which the policyholders, rather than the shareholders, solely benefit from the profits generated from the Takaful and Investment assets.
The Investment assets representing the Takaful fund that accumulate over the retained reserves, surpluses and provisions are invested by the shareholders who manage the company on behalf of the policyholders. The shareholders are rewarded with a percentage of the profit on these investments.
Islamic References to Takaful
These fundamentals are based on the sayings of the Islamic prophet Mohammed. Based on the hadith and Quranic verses mentioned below, Islamic scholars had decided that there should be a concerted effort to implement the Takaful concept as the best way to resolve these needs. Some of the examples are:
* Basis of Co-operation Help one another in al-Birr and in al-Taqwa (virtue, righteousness and piety): but do not help one another in sin and transgression. (Surah Al-Maidah, Verse 2)[2]
* Allah will always help His servant for as long as he helps others. (Narrated by Imam Ahmad bin Hanbal and Imam Abu Daud)
* Basis of Responsibility The place of relationships and feelings of people with faith, between each other, is just like the body; when one of its parts is afflicted with pain, then the rest of the body will be affected. (Narrated by Imam al-Bukhari and Imam Muslim)
* One true Muslim (Mu’min) and another true Muslim (Mu’min) is just like a building whereby every part in it strengthens the other part. (Narrated by Imam al-Bukhari and Imam Muslim)
* Basis of Mutual Protection By my life, which is in Allah’s power, nobody will enter Paradise if he does not protect his neighbour who is in distress. (Narrated by Imam Ahmad bin Hanbal)
“The basic fundamentals underlying the Takaful concept are very similar to co-operative and mutual principles, to the extent that the co-operative and mutual model is one that is accepted under Islamic Law."
* " Some Muslims believe insurance is unnecessary, as society should help its victims. Muslims can no longer ignore the fact that they live, trade and communicate with open global systems, and they can no longer ignore the need for banking and insurance. Aly Khorshid demonstrates how initial clerical apprehensions were overcome to create pioneering Muslim-friendly banking systems, and applies the lessons learnt to a workable insurance framework by which Muslims can compete with non-Muslims in business and have cover in daily life. The book uses relevant Quranic and Sunnah extracts, and the arguments of pro- and anti-insurance jurists to arrive at its conclusion that Muslims can enjoy the peace of mind and equity of an Islamic insurance scheme."
[edit] Principles of Takaful
The principles of Takaful are as follows:
* Policyholders cooperate among themselves for their common good.
* Every policyholder pays his subscription to help those that need assistance.
* Losses are divided and liabilities spread according to the community pooling system.
* Uncertainty is eliminated in respect of subscription and compensation.
* It does not derive advantage at the cost of others.
Theoretically, Takaful is perceived as cooperative insurance, where members contribute a certain sum of money to a common pool. The purpose of this system is not profits but to uphold the principle of "bear ye one another's burden." Commercial insurance is strictly not allowed for Muslims as agreed upon by most contemporary scholars because it contains the following elements: i) Al-Gharar (Uncertainty) ii) Al-Maisir (Gambling) iii) Riba (Interest)
There are three (3) models and several variations on how takaful can be implemented.
1. Mudharabah Model
2. Wakalah Model
3. Combination of both
[edit] Islamic Insurance
A book by Dr Aly Khorshid "Islamic insurance, with modern approach to Islamic Banking" Some Muslims believe insurance is unnecessary, as society should help its victims. Muslims can no longer ignore the fact that they live, trade and communicate with open global systems, and they can no longer ignore the need for banking and insurance. Aly Khorshid demonstrates how initial clerical apprehensions were overcome to create pioneering Muslim-friendly banking systems, and applies the lessons learnt to a workable insurance framework by which Muslims can compete with non-Muslims in business and have cover in daily life. The book uses relevant Quranic and Sunnah extracts, and the arguments of pro- and anti-insurance jurists to arrive at its conclusion that Muslims can enjoy the peace of mind and equity of an Islamic insurance scheme.
[edit] The Mudharabah Model (Profit Sharing)
By this principle, the entrepreneur or al-Mudharib (takaful operator) will accept payment of the takaful installments or takaful contributions (premium) termed as Ra's-ul-Mal from investors or providers of capital or fund (takaful participants) acting as Sahib-ul-Mal. The contract specifies how the profit (surplus) from the operations of takaful managed by the takaful operator is to be shared, in accordance with the principle of al-Mudharabah, between the participants as the providers of capital and the takaful operator as the entrepreneur. The sharing of such profit may be in a ratio 50:50, 60:40, 70:30, etc. as mutually agreed between the contracting parties.
In order to eliminate the element of uncertainty in the takaful contract, the concept of tabarru (to donate, to contribute, to give away) is incorporated. In relation to this a participant shall agree to relinquish as tabarru, certain proportion of his takaful installments or takaful contributions that he agrees or undertakes to pay thus enabling him to fulfill his obligation of mutual help and joint guarantee should any of his fellow participants suffer a defined loss.
In essence, tabarru would enable the participants to perform their deeds in sincerely assisting fellow participants who might suffer a loss or damage due to a catastrophe or disaster. The sharing of profit or surplus that may emerge from the operations of takaful, is made only after the obligation of assisting the fellow participants has been fulfilled. It is imperative, therefore, for a takaful operator to maintain adequate assets of the defined funds under its care whilst simultaneously striving prudently to ensure the funds are sufficiently protected against undue over-exposure. Therefore the provision of insurance cover as a form of business in conformity with Shariah is based on the Islamic principles of al-Takaful and al-Mudharabah.
Al-Hari Rayais the pact among a group of people, called participants, reciprocally guaranteeing each other; while Al-Mudharabah is the commercial profit-sharing contract between the provider or providers of funds for a business venture and the entrepreneur who actually conducts the business. The operation of takaful may thus be envisaged as the profit-sharing business venture between the takaful operator and the indi
