Download Designation of beneficiary in family takaful contracts

Wednesday, April 9th, 2014
DESIGNATION OF BENEFICIARY
IN FAMILY TAKAFUL CONTRACTS
Ezzedine GHLAMALLAH
Summary
Designation of beneficiary in family takaful contracts

I. Introduction

II. Designation of beneficiary in the French Legal
framework for family takaful (‘assurance-vie’)

III. Legal characterization of beneficiaries under
Shariah

IV. Conclusion
I. Introduction
Designation of beneficiary in family takaful contracts




French “life insurance” is a shell with both legal and tax
benefits. It is not truly an insurance contract, rather a
term deposit, close to family takaful.
Total amount outstanding of life insurance contracts:
1397 billions euros in late 2012
= 70% of French GDP
41% of French households own a life insurance contract.
I. Introduction
Designation of beneficiary in family takaful contracts
Asset value of French “life insurance” contracts
Stocks
26%
Bonds
74%
Source : FFSA
I. Introduction
Designation of beneficiary in family takaful contracts
1,8 billion Muslims in the
world
16 millions in
Europe
6 millions in
France
Rate of bancarisation
• 99 %
Penetration rate of the insurance*
• 10 %
*The penetration rate defines itself as the volume of the premiums divided by the GDP
I. Introduction
Designation of beneficiary in family takaful contracts
I. Introduction
Designation of beneficiary in family takaful contracts
French market players of the Family Takaful

Swiss Life – Salam Epargne & Placement

Vitis Life – Amâne Exclusive Life

CIFIE – Independent committee of the Islamic
Finance in Europe
Summary
Designation of beneficiary in family takaful contracts

I. Introduction

II. Designation of beneficiary in the French Legal
framework

III. Legal characterization of beneficiaries under
Shariah

IV. Conclusion
II. Designation of beneficiary
in the French legal framework
Designation of beneficiary in family takaful contracts

“Stipulation for the benefit of a third party”
(« stipulation pour autrui ») entitles the beneficiary
with a personal, enforceable right against the
insurer

This guaranteed amount does no longer belong to
the policyholder; it is no longer part of his estate
(inheritance law does no longer apply).

II. Designation of beneficiary
in the French legal framework
Designation of beneficiary in family takaful contracts
“Stipulation for the benefit of a third party”
entitles the beneficiary with a personal,
enforceable right [to the amount promised by
the contract].
 This guaranteed amount does not to the
policyholder’s estate.

“Life insurance” is then a guarantee and wealth
transfer instrument without tax nor legal
(inheritance) constraints.
II. Designation of beneficiary
in the French legal framework
Designation of beneficiary in family takaful contracts
Designation of beneficiary as an instrument of guarantee
Designation of the beneficiary by the contract qualifies
her/him as a creditor up to the amount receivable.

Debt will be repaid (by the insurance company) and
does not appear as a liability to the policyholder’s estate.

II. Designation of beneficiary
in the French legal framework
Designation of beneficiary in family takaful contracts
Designation of beneficiary, a wealth transfer instrument
Designation allows for tax optimization when
transferring a fraction of estate.
Designation endows the beneficiary independently of
the portion given away as will.

The policyholder experiences specific rules of law and
specific taxation.

When the policyholder dies, capital (or rent) do not
belong to the policholder’s estate. The value of the
contract is amenable to a specific tax regime.

II. Designation of beneficiary
in the French legal framework
Designation of beneficiary in family takaful contracts
Acquisition of rights distinct from heritage law
The capital or the pension paid at the death of the
policyholder to a beneficiary are not submitted to
inheritance regulation: neither to the report rules nor
to the reduction for reserve infrigement regulation.
(the largest part of estate is reserved for the children)
 Premium paid by the policyholder are exempt in the
same way unless they were "obviously exaggerated in
consideration of his/her [the policyholder] faculties"

II. Designation of beneficiary
in the French legal framework
Designation of beneficiary in family takaful contracts
Profitable tax optimization


A long the beneficiary is nominated in the contract, the capital or
the rent stipulated in the contract for his/her profit does not
belong the policyholder’s estate. There should then be NO
taxation. This exemption si limited in two mays:

The article 757 B of the CGI [Code General des Impôts]

The article 990 I of the CGI [= General Tax Code]
(Death duties in France start from the first euro: rate is 5%
to 45% for children & mate; 35-45% for brother/sister; 55%
for family; 60% for others.)
Summary
Designation of beneficiary in family takaful contracts

I. Introduction

II. Designation of beneficiary in the French Legal
framework

III. Legal characterization of beneficiaries under
Shariah

IV. Conclusion
III. Legal characterization of
beneficiaries under Shariah
Designation of beneficiary in family takaful contracts
Problem
The policyholder disposes during his lifetime of his estate for the
benefit of a beneficiary: this disposition will become effective after
the policyholder’s death. Is this a bequest (Al Wasiyah) amenable to
inheritance (Al Mirath) law?
Or
Shall we accept the French legal practice: the asset value is written off
the policyholder’s wealth as soon as the life insurance contract is
underwritten; it then belongs to the insurance company’s balance
sheet?
III. Legal characterization of
beneficiaries under Shariah
Designation of beneficiary in family takaful contracts
The profitable clause qualified as leg integral part of the inheritance



Malik related to me from Nafi from Abdullah ibn Umar that the Messenger of Allah, may
Allah bless him and grant him peace, said, "It is the duty of a muslim man who has
something to be given as a bequest not to spend two nights without writing a will about it.".
Mâlik brought reported : "The established sunna with us, in which there is no dispute, is that
it is not permitted for a testator to make a bequest (in addition to the fixed share) in favour
of an heir, unless the other heirs permit him. If some of them permit him and others refuse,
he is allowed to diminish the share of those who have given their permission. Those who
refuse take their full share from the inheritance”.
Malik related to me from Ibn Shihab from Amir ibn Sad ibn Abi Waqqas that his father said,
"The Messenger of Allah, may Allah bless him and grant him peace, came to me to treat me
for a pain which became hard to bear in the year of the farewell hajj. I said, 'Messenger of
Allah, you can see how far the pain has reached me. I have property and only my daughter
inherits from me. Shall I give two thirds of my property as sadaqa?' The Messenger of Allah,
may Allah bless him and grant him peace, said, 'No.' I said, 'Half?' He said, 'No.' Then the
Messenger of Allah, may Allah bless him and grant him peace, said, 'A third, and a third is a
lot. Leaving your heirs rich is better than leaving them poor to beg from people. You never
spend anything on maintenance desiring the Face of Allah by it, but that you are rewarded
for it, even what you appoint for your wife."
III. Legal characterization of
beneficiaries under Shariah
Designation of beneficiary in family takaful contracts


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The Muslims are thus encouraged to bequeath up to a third party of
their fortune through a will to beneficiaries not heirs.
Here are some examples of people who do not inherit automatically
under Sharia and who could be indicated (appointed) beneficiaries of
a Sharia compliant life insurance policy: the non-Muslim parents (the
Islam decreed that the non-Muslim parents receive a transmission on
behalf of their Muslim children), the child born out of wedlock who in
the Muslim tradition inherits from his/her mother and not from
his/her biological father, the Jewish or Christian wife of the
policyholder, or his creditors.
The beneficiary must comply with two rules: he does not have to be a
heir and the will is limited at the most to one third of the fortune of
the deceased. The subscriber of the Sharia compliant life insurance
policy can however indicate one or several legitimate heirs provided
that the other heirs give the right to him.
III. Legal characterization of
beneficiaries under Shariah
Designation of beneficiary in family takaful contracts
Designation of beneficiary to meet the rules of Islam
 Under French law, capital or rent receivable after the
policyholder’s death is not submitted to death duty. Court
of Cassation (C. ass. Art. L 132-12).

For which motive then consider the designation as a
bequest which would not obey French law, while this legal
system prevails?

Why shall we apply Islamic inheritance law (mirath) while
the rules of transmission of property by inheritance is not
applied in life insurance in French law?
III. Legal characterization of
beneficiaries under Shariah
Designation of beneficiary in family takaful contracts
Designation of beneficiary to meet the rules of Islam

Our approach allow for:
Comply with the Quranic law regarding inheritance sharing
inside the French legal framework.
 Use designation in order to share the estate according to
the Sharia.

Ex.Two children, according to french law, must have both one
half. Using designation, one third (quotité disponible) can be
given to a boy, leaving one third for his sister.
III. Legal characterization of
beneficiaries under Shariah
Designation of beneficiary in family takaful contracts
Designation of beneficiary to meet the rules of Islam
Example with four children: two males, two females – mirath
would give 1/6th to every daughter and 1/3th to every son. This is
no directly possible under French egalitarian law.
The amount disposable is only ¼: by giving it to sons, every
daughter would receive 3/16 and every boy 1/4 = 4/16. Still does
not meet the mark.
In order to meet the shariah standard, the father can take another
1/9 of his estate to give it to his sons designated through life
insurance. In this case every son will enjoy 1/18 (via life insurance)
+ 8/9x1/8 (via disposable amount) + 8/9x3/16 (via reserve) = 0,333
while every daughter would have ¼ of the reserve
(8/9x3/4)=0,167.
Summary
Designation of beneficiary in family takaful contracts

I. Introduction

II. Designation of beneficiary in the French Legal
framework

III. Legal characterization of beneficiaries under
Shariah

IV. Conclusion
IV. Conclusion
Designation of beneficiary in family takaful contracts



The writer of the profitable clause compatible Sharia will be a function of the legal
qualification in Muslim law which will be made.
Qualified as leg, the profitable clause of the life insurance policy compatible
Sharia allows to bequeath up to a third party of the fortune of the insurant to
beneficiaries not heirs, she can be used for example to make a legacy to nonMuslim parents, to born child out of wedlock, to Jewish or Christian woman or still
intervene as guarantee with one creditors. The beneficiary of the clause not in
front of not to be a heir with a leg not in front of not to exceed a third party of the
fortune of the deceased by knowing that the subscriber of the life insurance
policy compatible Sharia keeps the possibility of indicating one or several
legitimate heirs provided that the other heirs give the right to him.
Qualified off succession as it is the case in French law, it allows to appoint the
legitimate heirs and to draft a typical clause compatible Sharia for a sharing
according to the rules of the Sharia while staying in compliance with the French
law.
Designation of beneficiary in family takaful contracts
Thank you for your attention