TAKAFUL INSTITUTIONS

Who Need Insurance and Takaful?

Concept of Risk from Islamic point of view

• And We will surely test you with something of fear and hunger and a
loss of wealth and lives and fruits, but give good tidings to the
patient,

And We will surely test you with something of fear and hunger and a loss of wealth and lives and
fruits, but give good tidings to the patient,

Those are the ones upon whom are blessings from their Lord and mercy. And it is those who are the [rightly]
guided.
Concept of Risk from Islamic point of view

And [subsequently] the king said, "Indeed, I have seen [in a dream] seven fat cows being eaten by
seven [that were] lean, and seven green spikes [of grain] and others [that were] dry. O eminent
ones, explain to me my vision, if you should interpret visions."

They said, "[It is but] a mixture of false dreams, and we are not learned in the interpretation of
dreams."
Concept of Risk from Islamic point of view
 The Prophet (s.a.w.) noticed a Bedouin
leaving a camel and he asked the
Bedouin, "Why don't you tie down your
camel?" The Bedouin answered, ''/put my
trust in Allah." The Prophet said, "Tie
your camel first, then put your trust in
Mitigate Risk Allah."

from Islamic
Perspective
(Narrated by Al-Tirmizi and Ibn Majah,
Book 60, No. 2517)
 • This hadith clearly indicates that a person
should always take appropriate measures
to safeguard himself or his property against
risk of loss.
Mitigate Risk • Applying the lessons from the saying of the
Prophet above to the practice of takaful,
from Islamic it can be said that takaful is a strategy of
risk mitigation by way of a collective risk
Perspective taking that distributes risks and harm to
large numbers of participants.
• This mitigates the otherwise very damaging
harm that can be caused to a person if the
risk is to be borne individually.
Insurance
• Provide financial
Riba
assistance in the event
of insured risk occurs
• The function does not Prohibition
elements
contradict with shariah in
insurance

• The operational of Gharar Maysir

insurance is contradict
with shariah
• 1972 Fatwa by National Council for
Islamic Religious Affairs of Malaysia
that life insurance is not lawful as
it contains gharar, maysir and riba.
• Islam is not against the concept
of insurance itself but against
some of the means and methods
that are currently used in
conventional insurance.
• Islamic Financial Services Board,
IFSB & International Association
of Insurance Supervisors, lAIS)
8
 insurance

gharar maysir
riba
mechanism to
manage and mitigate
losses

utilises the contract

theft, accident, poor health of sale and purchase therefore
etc It involves with

the purpose of insurance

does not contradict with however Muslim scholars have rejected
Islamic Law conventional insurance
AL-Baqarah: 275

10
Hadith on Riba

(Bukhari No. 2067, 2 : 761 ; Muslim, No. 1584, 693

• From 'Ubada ibn al-Samit: The Prophet (p), said:

"Gold for gold, silver for silver, wheat for wheat,
barley for barley dates for dates, and salt for salt - like
for like, equal for equal, and hand-to-hand; if the
commodities differ, then you may sell as you wish,
provided that the exchange is hand-to-hand.

11
 Prohibited
Elements in
insurance

Riba Gharar Maisir

Riba al-buyu’ Uncertainty of the Possibility death will

amount of premium occur= in order to get
Premium= sum insured should be paid the sum covered

Uncertainty the Possibility accident

Riba al-qardh (from
amount of will occur=in order to
policy)
compensation get the sum covered
Life Insurance
• Sum insured= RM200,000
• Monthly Premium= RM300
• Sum insured=upon death
• Account Value + investment return=policy expired (non death)
Car Insurance
• Sum insured= RM200,000
• One off Premium= RM3000 (yearly)
• Accident occurs= loss
• No accident = no loss
Insurance provides financial assistance during
misfortune happen but has prohibited elements.
For Muslims what choice do they have?.
 Takaful is derived from the Arabic root-word
"kafala", a verb, which means guarantee, bail,
warrant or an act of securing one's need.

Definition Therefore, takaful (in its reciprocal form) means

joint guarantee, whereby a group of participants

of takaful agree to mutually guarantee each other against a

defined loss.

In the context of islamic insurance, takaful refers

to an arrangement for mutual indemnity in
providing protection and compensation to the
participants who suffered from perils or hazards.
 ''Islamic insurance is an agreement between
persons who are exposed to risks to protect
themselves against harms arising from the risks
The by paying contributions on the basis of
"commitment to donate'' (iltizam bi al-tabarru ).
AAOIFI's Following from that, the insurance fund is
Shari'ah established and it is treated as a separate legal
entity (shakhsiyyah i'tibariyyah) which has
Standard 26 independent financial liability.

(2) of 2007 The fund will cover the compensation against

provides: harms that befall any of participants due to the
occurrence of the insured risks (perils) in
accordance with the terms of the policy."
THE CONCEPT OF TAKAFUL

The concept of takaful embraces the elements of

mutual protection and shared responsibility.

The system of mutual protection and shared

responsibility entails a situation where a group of
people co-operate amongst themselves to
establish common resources for the purpose of
mutual indemnity.

For instance, in a takaful scheme, a group of

people, i.e. the participants, mutually contribute
to a common fund with the purpose of providing
mutual indemnity in the case of peril and harm
occurring to anyone of them.
TAKAFUL OPERATOR - PARTICIPANT (CUSTOMER)- THE FUND
Syariah Principles in Takaful Contract

Takaful wakalah Qardh

Wakalah bi al-
Taawun Ujrah
istihmar

Iltizam Tabarru’ Hibah Mudarabah

Tabarru’ Ju’alah Waqaf

Shariah Contract in General Takaful Business

Wakalah

Iltizam bi al-
tabarru’
ujrah mudarabah
al-tabarru’

Jua’lah

21
Shariah Contract in Family Takaful Business
Wakalah bi
al-isthmar
/mudaraba Iltizam bi
h tabarru’

ujrah

tabarru’

Incured but not

reported
Jua’lah
 Certificate Year Upfront Wakalah Charge
1 60%

PRU BSN
2 60%
3 50%

TAKAFUL 4 30%
5 20%
6 20%
7 and above 0%
 Type of
Takaful

Family General
Assessing eligibility of Takaful
Participants: Underwriting
• Asses the mortality risk
• Based on specific questions –age-
gender-health-smoker-non smoker -
1. Accept
2. Reject
3. Accept with loading
 Underwriting
Age Insured Annual Contribution Sum Covered
18 MALE ( NON-SMOKER) RM255.00 RM100,000.00
18 MALE ( SMOKER) RM380.00 RM100,000.00
18 FEMALE ( NON-SMOKER) RM190.00 RM100,000.00
18 FEMALE (SMOKER) RM240.00 RM100,000.00
40 MALE ( NON-SMOKER) RM380.00 RM100,000.00
40 MALE ( SMOKER RM665.00 RM100,000.00
40 FEMALE ( NON-SMOKER) RM290.00 RM100,000.00
40 FEMALE (SMOKER) RM425.00 RM100,000.00
Takaful Form
• Utmost Good Faith
Insurable interest in Family Takaful

Insurable Interest

Takaful Operator Policy Holder

Insured
Insured

Insured

Insured Beneficiary

Pay Contribution
Insurable interest in General Takaful
 Differences between Takaful and
Conventional Insurance
Conventional Insurance Takaful

• The premium is paid to conventional insurance • All or part of the contribution paid by the participant
companies and is owned by them in exchange for is a donation ( tabarru ) to the takaful fund, which
bearing all expected risks. helps other participants by providing protection
against potential risks.

• Governing Law - Financial Services Act 2013 • Governing Law - Islamic Financial Services Act 2013
(IFSA 2013) and Shariah Supervisory Board

• Premium paid by the policyholder is considered as • There is a full segregation between the participant’s
income to the company, belonging to the takaful fund account and the shareholders’ accounts.
shareholders.

• Reinsurance with conventional Reinsurance company • Reinsurance with Retakaful Company

32
 Differences between Takaful and
Conventional Insurance
Conventional Insurance Takaful

• Can provide protection to any property or any purpose • Can provide coverage to shariah compliance property
-temple or purposes
-church • Hospital
-alcoholic factory • Vehicale
- • House

• Governance- Board of Director • Governance- Board of Director, Shariah Commitee

• The insurance fund can be invested in any profitable • Takaful fund can be invested in shariah compliance
investment investment

• Any income gained can be recognized as income- • Any income from shariah non compliance sources will
investment return, fee, be chanelled to charity body and reported in annual
report 33