Download Takaful

Learning Objective 1.1
Basic Concepts of Takaful
Understand the meaning
and basic concepts of
takaful as an alternative to
conventional insurance
with an insight into its
historical development
• Takaful - Arabic word originating from the root
verb kafalah –to guarantee, to secure or to be
responsible for others
• Literally, takaful means joint responsibility or
guarantee based on mutual agreement
• Three basic concepts of mutuality are embodied
in the takaful model of insurance:
- Mutual help
- Mutual responsibility
- Mutual protection
Learning Objective 1.1
Basic Concepts of Takaful
Understand the meaning
and basic concepts of
takaful as an alternative to
conventional insurance
with an insight into its
historical development
Figure 8.1: Triangular Relationship of the Major
Aspects of Takaful
Learning Objective 1.1
Basic Concepts of Takaful
Understand the meaning
and basic concepts of
takaful as an alternative to
conventional insurance
with an insight into its
historical development
• Takaful: Islamic alternative to conventional insurance
where members contribute financial resources into a pool
based on principles of:
- ta’awun (mutual assistance)
tabarru’ (donation) where the group undertakes to
share the mutual risk together
An appropriate Sharī‘ah-compliant framework effectively
manages risks in commercial activities as well as other civil
engagements - following the hadith ‘Tie your camel first’
• All prohibitive elements in Islamic commercial transactions
are prohibited in the design of takaful models
Learning Objective 1.1
Basic Concepts of Takaful
Understand the meaning
and basic concepts of
takaful as an alternative to
conventional insurance
with an insight into its
historical development
Main Features of Takaful
1.Cooperative Risk Sharing
2.Clear Financial Segregation
3.Sharī‘ah-compliant Policies and Strategies
Learning Objective 1.1
Basic Concepts of Takaful
Understand the meaning
and basic concepts of
takaful as an alternative to
conventional insurance
with an insight into its
historical development
Main Features of Takaful
1. Cooperative Risk Sharing
• Cooperative risk sharing through the use of donation
was designed to:
- eliminate riba and ghrar elements in takaful
- address issues of social responsibility, solidarity and
the innate need to care for others
• Donations adopted/merged with other frameworks of
Islamic commercial transactions to replace premiums
• Premiums paid by policyholders are considered
donations to assist members who suffer any loss
Learning Objective 1.1
Basic
Concepts
of
Takaful
Main Features of Takaful
Understand the meaning
and basic concepts of
takaful as an alternative to
conventional insurance
with an insight into its
historical development
2. Clear Financial Segregation
• In Islamic law:
- Clear
segregation between participants and operators
- The role of the insurance company is restricted to an
operator managing the portfolio and investing insurance
contribution on behalf of participants
• In the conventional practice of insurance business: - - The
insurance company is a profit-making entity which agrees to bear
the financial burden and losses of its policyholders
• The shareholders are entitled to receive profit and bear the burden
of any deficit at the end of the financial year
Learning Objective 1.1
Basic Concepts of Takaful
Main Features of Takaful
Understand the meaning
and basic concepts of
takaful as an alternative to
conventional insurance
with an insight into its
historical development
3. Sharī‘ah-compliant Policies and Strategies
• Investment of insurance funds should be made on
ethical businesses that cause no harm to people or the
environment
• Ethical considerations in takaful extends to investment
in businesses or products that do not contradict
Sharī‘ah. Both the process and the end-product must
be Sharī‘ah-compliant
• Takaful operators are required to put in place a
standard Sharī‘ah governance system to ensure
absolute compliance with the Sharī‘ah
Learning Objective 1.1
Basic Concepts of Takaful
Understand the meaning
and basic concepts of
takaful as an alternative to
conventional insurance
with an insight into its
historical development
Takaful Core Principles
• Ta’awun (mutual assistance)
• Tabarru’ (donation)
• prohibition of riba, gharar and maysir
Learning Objective 1.1
Basic Concepts of Takaful
Understand the meaning
and basic concepts of
takaful as an alternative to
conventional insurance
with an insight into its
historical development
Major Differences Between Takaful and Conventional
Insurance
The major differences between the two frameworks are:
– Parties to the contract
– Payment of premiums
– Investment of insurance funds
Learning Objective 1.1
Basic Concepts of Takaful
Understand the meaning
and basic concepts of
takaful as an alternative to
conventional insurance
with an insight into its
historical development
Historical Development of Takaful
• The Prophet (PBUH) upheld and preserved insurance
protection practices carried out by ancient Arab
traders.
• A classical precedent of takaful among the Muslims
was displayed during the incidence of migration of the
Prophet (PBUH) from Mecca to Medina
• The companions of the Prophet promoted mutual
assistance and shared responsibility under the close
supervision of the Prophet (PBUH)
Learning Objective 1.2
Models of Takaful
Describe the innovative
Sharī‘ah-approved models
and structures of takaful
The main two parties involved in the
implementation of the takaful system
regardless of the takaful model being used
are:
• Takaful operator: the party who manages and
administer the takaful fund
• Participants: the owners of the takaful fund,
participants and policyholders
Learning Objective 1.3
Main Takaful Products
Describe the main takaful
products and their
expansion into the global
insurance market
Main Takaful Products
Available products in the takaful industry:
- General Takaful: is a Sharī‘ah-compliant
alternative to the general insurance
- Family Takaful: is a Sharī‘ah-compliant
alternatives to
the life insurance
Learning Objective 1.3
Main Takaful Products
Describe the main takaful
products and their
expansion into the global
insurance market
Main Takaful Products
General Takaful
• General takaful: a short-term policy renewable periodically;
covers assets and other proprietary belongings of participants
from foreseeable material loss or any form of damage
• General takaful fund established through participants’
contributions. Funds invested in Sharī‘ah-compliant
investments
• Proceeds accrue from such investment will be returned to the
fund for indemnifying the takaful participants
• Underwriting surpluses of the takaful funds are distributed to
the participants annually
Learning Objective 1.3
Main Takaful Products
Describe the main takaful
products and their
expansion into the global
insurance market
General Takaful Covers (list is not exhaustive)
- Motor Takaful
- Fire Takaful
- Employer Liability Takaful
- Fire consequential Loss Takaful
- Burglary Takaful
- Workmen Compensation Takaful
- Machinery Breakdown Takaful
- Health Takaful
• Available takaful covers are categorised into
motor takaful and non-motor takaful
Learning Objective 1.3
Main Takaful Products
Describe the main takaful
products and their
expansion into the global
insurance market
Family Takaful
• Family takaful is a long-term policy (may span between 10
to 30 years) where people come together to mutually
indemnify one another against disasters that may occur
such as sudden death or permanent disability
• Examples of family
takaful include
- accidental death
savings and
education plans
for one’s dependants
- retirement plans
- disability plans
- waaqf plans
-
Learning Objective 1.3
Main Takaful Products
Describe the main takaful
products and their
expansion into the global
insurance market
Types of Family Takaful
• Ordinary collaboration
• Collaboration with savings
• Collaboration based on specific groups
Learning Objective 1.3
Main Takaful Products
Describe the main takaful
products and their
expansion into the global
insurance market
Three Types of Family Takaful
First: Ordinary Collaboration
• The participants mutually agree to contribute to a
common pool of funds through donations (concept of
tabarru’)
• Premiums used for underwriting activities in case of
calamity or disaster for any of the members of the
group
• Payment made directly to participant or his/her
beneficiaries in accordance with the underlying takaful
contract
Learning Objective 1.3
Main Takaful Products
Describe the main takaful
products and their
expansion into the global
insurance market
Second: Collaboration with Savings
• The parties contribute through donations into a
common pool of funds from which the underwriting
activities are carried out
• The second pool of funds constitutes savings of
individual participants which may be demanded by
respective owners at maturity of certain period of time
• The two pools of funds are strategically segregated
• The participants benefit individually as well as
collectively form the collaboration with savings
Learning Objective 1.3
Main Takaful Products
Describe the main takaful
products and their
expansion into the global
insurance market
Third: Collaboration Based on Specific Groups
• Type of family plan usually structured reflecting
communal, ethnic, or organisational needs
• Participants from the same community, district or
social group come together to establish a common
pool of funds for a specific purpose
• Membership to collaboration is limited to those who
come from the same group
• Contributions to the fund may be made jointly or
severally by the organisation and the participants
• Benefits from the common pool of funds can only be
enjoyed by the participants or their beneficiaries
THE END!
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