INSURANCE vs TAKAFUL Presented by: M. Asim Qaseem Uzair Nawaz Fakhar Tayyab M.Burhan Ali Zayed Saleem
INSURANCE Insurance is a contract between two parties One party agrees to undertake the risk of another in exchange for consideration known as premium and promises to pay a fixed sum of money to the other party on happening of an uncertain event or after the expiry of ascertain The party bearing the risk is known as the insurer „ The party whose risk is covered is known as the insured
TYPES OF INSURANCE1) Life insurance2) General insurance
1) LIFE INSURANCE Life insurance provides a monetary benefit to: A decedents family or other designated beneficiary May specifically provide for income to an insured persons family, burial, funeral and other final expenses.
LIFE INSURANCE POLICIES Profits paid to the beneficiary either in a lump sum cash payment or an annuity Annuities and pensions that pay a benefit for life are sometimes regarded as insurance against the possibility that a retiree will outlive his or her financial resources Annuities and endowment policies are financial instruments to accumulate or liquidate wealth when it is needed.
2) GENENRAL INSURANCE An insurance policy that protects you against losses and damages (unforeseen) other than those covered by life insurance
TYPES OF GENERALINSURANCEa) Vehicle insuranceb) Health insurancec) Home insuranced) Property insurance
a) VEHICAL INSURANCE “Auto insurance protects you against financial loss if you have an accident.” Auto insurance provides: Property Liability Medical coverage
b) HEALTH INSURANCE Medical and Health Insurance (MHI), is an insurance policy which is designed to cover the cost of private medical treatment, which can be very expensive, especially with hospitalization and surgery
c) HOME INSURANCE “Home insurance provides compensation for damage or destruction of a home from disasters.” In some geographical areas, the standard insurances exclude certain types of disasters, such as flood and earthquakes
d) PROPERTY INSURANCE “Property insurance provides protection against risks to property, such as fire, theft or weather damage.” This includes specialized forms of insurance such as: Fire insurance Flood insurance Earthquake insurance Home insurance
Takaful Takaful is an Arabic word that means “Guaranteeing each other”.ƒ It is a system of Islamic Insurance based on the principle of TA‟AWUN (mutual assistance) and TABARRU‟ (Gift, Give away, donation) where the risk is shared collectively by the group VOLUNTARILY. This is a pact among a group of members or participants who agree to jointly guarantee among themselves against loss or damage to any of them as defined in the pact.
Models Of Takaful Mudarabah Model Wakalah Model (hybrid of Wakalah & Mudarabah) Wakalah based on Waqf Model.
Mudarabah Model ƒ The participant and the operator enter into a Mudarabah contract from the beginning of the relation, for indemnification and share of the underwriting results. ƒ The Surplus is shared between the participants and the takaful operator in an agreed ratio. ƒ This model allows the takaful operator to share in the underwriting results from operations as well as the favorable performance returns on invested premiums
Mudarabah Model Shariah Concerns. The relation between the participants is that of tabarru‟ and not Mudarabah, “Profit Sharing” can‟t be applied here. Donation cannot be Mudarabah capital at the same time. ƒ In a Mudarabah contract, a profit is to be generated to be distributed. Profit is not the same as „Surplus‟ (excess pf premiums over claims, reserves and expenses) and in the insurance context no definition can be generated by definition.
Mudarabah Model Shariah Concerns The sharing in underwriting surplus itself is something which is similar to making this into a commercial business venture and not a mutual contract for assistance and protection. The requirement to provide Qard Hasanah (in case of a deficit) in a Mudarabah contract by definition is against the concept of Mudarabah which is a profit sharing contract and a Mudarib cannot be a guarantor.
Wakalah Model Islamic Transaction System is a dynamic system and in line with current needs of the ummah (people). Although the concept and basic principles outlined by Islam in its Transaction (Muamalat) system seemed more traditional, it can be processed in a very practical and able means to meet the financial needs of modern and complex community. This is the best part of Islam which holds no boundaries not only in time but also geography.
Wakalah Model The Wakalah contract is among the treasures of Islamic Transaction system that has been popularized and its application tailored in various facilities in the contemporary Islamic financial system. The word Wakalah is taken from the Arabic word which means representative. The fuqaha (jurists representatives Islamic scholars) have agreed that the deed must be in accordance with syara and must be based on is permissible according to syara‟ and has been proved by the Holy Quran.
Wakalah Model The Wakalah contract is made into Islamic laws shows evidence that human behavior is weak, cannot live alone and require one another to manage the affairs of life. Islam promotes the use of Wakalah principles in various fields of activities as long as they do not conflict with Islamic laws. Wakalah contract is divided into General Wakalah, Special Wakalah, Paid Wakalah and Unpaid
Wakalah Model The General Wakalah is a Wakalah in matters that are not specified such as a representative in all business transactions, or being a representative without any prescribed goods to be sold or purchased. A Special Wakalah is a representative devoted to matters such as sale and purchase of homes or cars, or rental properties such as land, houses and buildings. Special Wakalah is bound by the matter or affair devoted to him. Paid Wakalah is required permissible by Syara. Unpaid Wakalah is a representative who works voluntarily without any form of payment.
Wakalah Model The Wakalah concept is practiced by most of the takaful operators in Malaysia and this is a necessary tool to market the takaful products to the society. Under the Wakalah system, the representative is necessarily associated with four characteristics, Siddiq (Honesty), Amanah (Trust), Tabligh (Passing Preaching) and Fatanah (Wise Wisdom).
Waqf Model ƒ In order to eliminate the element of “Mayser”, the concept of „Waqf‟ and „Tabarru‟ is incorporated. In relation to this participants shall agree to relinquish as “donation” certain amount of money. The Takaful Fund, consisting of the contributions paid as Tabarru, will be further invested by the Company based on the principle of Islamic modes of Trades, through which the element of interest (riba) will be replaced.
Waqf ModelBasic Features ƒ A Waqf Fund is established by the shareholders of Takaful Company through the contribution of „Ceding amount‟ (part of the Capital) to compensate the beneficiaries or participant of Takaful scheme. The Ceding amount of the Waqf will remain invested. ƒ Any person by signing the proposal form, contributing to the Waqf and subscribing to the policy documents shall become the member of the Waqf fund.
Waqf ModelBasic Features ƒ The Waqf Fund will lay down the rules for distribution of its funds to the beneficiaries and will decide how much compensation should be given to a subscriber/member . The Waqf will become owner of all contributions and has the right to act as a legal entity as per its terms for investment, compensations and dealing with the surplus amounts.
Waqf ModelBasic Features The Takaful Company may distribute the surplus amounts on the following three basis: A portion of surplus should be kept as reserve to mitigate the future losses. A portion of surplus should be distributed among the participants to differentiate it from the conventional insurance procedures. A portion of surplus should be utilized for the charitable purposes every year.
Waqf ModelBasic Features As per the rules of the Waqf, if the fund is liquidated, the outstanding balance, after paying all dues and payables, will be utilized to charitable purposes. The Takaful company, while managing the Waqf Fund, will play two different roles simultaneously:
Waqf Model Operator/Manager: As Operator/Manager, the Takaful Company will perform all functions necessary for the operations of the Waqf against a Wakala fee to be deducted from the Contributions of the Participants. Mudarib: As Mudarib of the fund, the Takaful Company will manage the investment of the excess funds of the Waqf into Shariah compliant investments and will participate in the profit of the fund‟s investments at a fixed ratio of profit.