Conventional insurance involves the elements of uncertainty, gambling and interest, all of which are unacceptable under Islamic law. Muslims around the world have for generations grown up with the mind set that insurance is forbidden because it contravenes some of the Islamic doctrines. However, the 1985 Fiqh Academy ruling declared that conventional commercial insurance was forbidden but insurance based on the application of cooperative principles, Shariah compliance and charitable donations, was acceptable.
Takaful is a protection plan based on Shariah principles. Takaful derived from an Arabic word which means joint guarantee, whereby a group of people (participants) contributes a sum of money into a common pool or fund, which will be used to participants against loss or damage incurred.
Takaful practices originated from Arab tribal custom of Al-Aqilah. Doctrine practised on mutual agreement among the ancient Arab tribes. System of Al-Aqilah leads to the foundation of mutual insurance, hence the establishment of Takaful. In Malaysia, the Takaful is managed by the Takaful operator. The Takaful operator is the administrator of the fund and manages the fund in trust on behalf of the participants, and the contract between the participants and the operator is governed under the contract of mudharabah (profit-sharing) or wakalah (agency). Sources of income for the operator are from profit from the investment of its shareholders’ fund; agency/wakalah fee; share of investment profit of Takaful funds; and/or surplus of the Takaful funds.
The principles of Takaful are as follows:
• Policyholders co-operate 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.
Takaful models
The two main business models used in the Takaful industry are the Mudharabah and the Wakalah models. The Mudharabah model is involves the Takaful operator managing the operation in return for a share of the surplus on underwriting and a share of profit from investments. Mudharabah gives the right to the contracting parties to share the profit, while liability for losses is borne by the participants
The Wakalah model is more prevalent in the Middle East region. In this model, the Takaful operator acts as an agent for the participants and manages the Takaful fund in return for a defined fee. Under this model, the Takaful operator earns a fee for services rendered while liability for losses is borne by the participants. The fee may be varied based on the performance of the Takaful operator.
Terminologies
Insurance = Takaful
Insurer = Operator
General Insurance = General Takaful
Life Insurance = Family Takaful
Policyholder = Participant
Premium = Contribution
Reinsurance = Retakaful
Takaful is a protection plan based on Shariah principles. Takaful derived from an Arabic word which means joint guarantee, whereby a group of people (participants) contributes a sum of money into a common pool or fund, which will be used to participants against loss or damage incurred.
Takaful practices originated from Arab tribal custom of Al-Aqilah. Doctrine practised on mutual agreement among the ancient Arab tribes. System of Al-Aqilah leads to the foundation of mutual insurance, hence the establishment of Takaful. In Malaysia, the Takaful is managed by the Takaful operator. The Takaful operator is the administrator of the fund and manages the fund in trust on behalf of the participants, and the contract between the participants and the operator is governed under the contract of mudharabah (profit-sharing) or wakalah (agency). Sources of income for the operator are from profit from the investment of its shareholders’ fund; agency/wakalah fee; share of investment profit of Takaful funds; and/or surplus of the Takaful funds.
The principles of Takaful are as follows:
• Policyholders co-operate 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.
Takaful models
The two main business models used in the Takaful industry are the Mudharabah and the Wakalah models. The Mudharabah model is involves the Takaful operator managing the operation in return for a share of the surplus on underwriting and a share of profit from investments. Mudharabah gives the right to the contracting parties to share the profit, while liability for losses is borne by the participants
The Wakalah model is more prevalent in the Middle East region. In this model, the Takaful operator acts as an agent for the participants and manages the Takaful fund in return for a defined fee. Under this model, the Takaful operator earns a fee for services rendered while liability for losses is borne by the participants. The fee may be varied based on the performance of the Takaful operator.
Terminologies
Insurance = Takaful
Insurer = Operator
General Insurance = General Takaful
Life Insurance = Family Takaful
Policyholder = Participant
Premium = Contribution
Reinsurance = Retakaful
Posts
Look forward to read more such informative articles.
ReplyDelete