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
ofanother in exchange for consideration
known as premium and promises to pay a
fixed sum ofmoney 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 INSURANCE
Life insurance
2) General insurance
1)

1) LIFE INSURANCE
Life insurance provides a
monetary benefit to:
A decedent's family or other
designated beneficiary
May specifically provide for
income to an insured person's
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.

General Insurance

Zayed Saleem

2) GENENRAL INSURANCE
An insurance policy that protects
you against losses and damages
(unforeseen) other than those
covered by life insurance

TYPES OF GENERAL INSURANCE

Vehicle insurance
b) Health insurance
c) Home insurance
d) Property insurance
a)

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 ofprivate 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

M.Burhan Ali

Takaful
Takaful is an Arabic word that means
Guaranteeing each other.
It is a system of Islamic Insurance based on the
principle of TAAWUN (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
Mudarabah)
Wakalah based on Waqf Model.

Wakalah

&

Mudarabah Model
The

participant and the operator enter into a

Mudarabah contract from the beginning of the
relation, for indemnification and share of the
underwriting results.
The Surplus is shared between the participants
and the takaful operator in an agreed ratio.
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 cant be
applied here. Donation cannot be Mudarabah capital
at the same time.
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

Fakhar Tayyab

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.

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

Asim Qaseem

Waqf Model
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 Model
Basic Features
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.
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 Model
Basic Features
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 Model
Basic 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 Model
Basic 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 funds investments at a
fixed ratio of profit.

Thank You!

Questions???