PS304 TAKAFUL

CHAPTER 2
FUNDAMENTAL AND
PRINCIPLES OF TAKAFUL

2.0 FUNDAMENTAL AND PRINCIPLES OF

TAKAFUL
2.1 Understand the basic insurance
principles
2.1.1 Describe basic insurance
principles
a. Insurable interest
b. Utmost good faith
c. Indemnity
d. Proximate cause
e. Subrogation
f. Contribution
2.2 Explain the history of Takaful
2.2.1 Identify the history of Takaful
a. the compensation (al-Diat)
b. the Common Fund (al-Kanz)
c. the Aqila System (al-Aqila)
2.3 Identify the basic principles of Takaful
2.3.1 Describe the principles and
nature of :
a. Al-Takaful (joint guarantee)
b. Al-Tabarru (to donate)
c. Al-Mudharabah (profit sharing

Basic Insurance principles

1. Insurable interest
. A basic rule of insurance requiring the
person buying insurance to have an
insurable interest in the subject matter to
be insured or life of the insured in that the
loss or damage to the subject matter or
any misfortune which occurs to the insured
would result in a financial loss to the policy
holder. In takaful, this requirement is called
permissible takaful interest.

Example of insurable interest

If the house you own is damaged by fire, the value of
your house has been reduced by the damages
sustained in the fire. Whether you pay to have the
house rebuilt or you end up selling it at a reduced
price, you have suffered a financial loss resulting from
the fire. By contrast, if your neighbor's house, which
you do not own, is damaged by fire, you may feel
sympathy for your neighbor and you may even be
emotionally upset, but you have not suffered a
financial loss from the fire. You have an insurable
interest in your own house, but in this example you do
not have an insurable interest in your neighbor's
house.

2 Utmost good faith

One of the basic principles of insurance that
essentially requires the policyholder to
disclose all the material facts to the
insurance company when proposing for a
policy. This is in view that the insurance
company normally takes on the risk by
relying on the information given by the policy
owner in the proposal form.
A requirement on the person buying an
insurance or takaful product to state all
relevant details in the application form to the
insurance company/ takaful operator to allow
the insurance company/ takaful operator to
consider his application fairly.

3. Indemnity
Putting the policy holder to the same
financial position immediately before
a loss by payment, repair or
replacement.
Gantirugi sahaja. Mengembalikan
keadaan hampir seperti sebelum
berlaku sesuatu bencana.

Indemnity
Also to reduce the elements of
gambling
Only
this
part
is
payable

AFTER

4. Proximate cause
Proximate cause is the primary cause of an
injury. It is not necessarily the closest cause in
time or space nor the first event that sets in
motion a sequence of events leading to an
injury. Proximate cause produces particular,
foreseeable consequences without the
intervention of any independent or
unforeseeable cause. It is also known as legal
cause.
An act from which an injury results as a natural,
direct, uninterrupted consequence and
without which the injury would not have
occurred.

5. Subrogation
Is the right of the company who has granted
an indemnity to take over any recovery rights
that the insured may have against third
parties which are liable for the same loss. A
subrogation condition in the certificate/policy
enables the company to take action in the
insureds name before paying the claim.
Example: a company paying for a car damaged
by a third parties negligence can pursue the
third party.

6. Contribution
Equal division between companies
where two or more companies cover
the same insured and the same risk.
Each company pays a suitable
proportion of the loss.

COMPANY B
RM50,000

COMPANY A
RM75,000

RM75,000 + RM50,000 = RM125,000

LOSS =
RM100,000
BREACH INDEMNITY PRINCIPLE

History of takaful
Diat
Kanz
aqilla

Basic principles

Al-takaful
At-tabarru
Mudharabah
Wakalah

TAKAFUL derived from Arabic words Kafala, means

joint guarantee. Therefore, it is an islamic insurance
scheme where participants jointly guarantee each
other against loss or damage. It is one of the
Muamalah within Hukm Fiqh. Your payments will be
classified as Contribution (Tabarru) to fulfill the
deeds in assisting any participating member facing
calamity.
TAKAFUL business is made-up of the contracts of
TABARRU, WAKALAH and MUDHARABAH, thus free of
GHARAR, MAISIR AND RIBA. Takaful is for Protection,
Saving and Investment Plan in compliance with
Shariah that seek to secure genuine maslahah and
prevent masfadah in this world, side by side with the
hereafter.

Takaful literally means shared

responsibility, shared guarantee,
collective assurance and mutual
undertakings.
Thus
Shariahcompliant insurance is based on
shared responsibility, mutual cooperation and solidarity and is
designed to protect the participant
against a defined risk. Takaful
schemes are free from elements
of gharar (uncertainty) in respect
of premium and coverage, maisir
(gambling) and riba (interest).

Tabarru
Tabarru means a donation, charity or gift
which cannot be taken back. In general
Takaful, a percentage of the participants
contribution will be considered as tabarru
and thus cannot be taken back, as it is the
principle of the joint guarantee to help other
participants. Once a participant joins the
Takaful policy, a portion of his contribution is
allocated through the tabarru principle to
help all participants from unexpected but
defined risks.

Wakalah Model
The wakalah concept is essentially
an
agent-principal
relationship,
where the takaful operator acts as
an
agent
on
behalf
of
the
participants and earns a fee for
services rendered. The fee can be a
fixed amount or based on an agreed
ratio of investment profit or surplus
of
the
takaful
funds.

Mudharabah Model
Under the mudharabah contract, the takaful
operator acts as a mudharib (entrepreneur)
and the participants as rabbul mal (Capital
providers). The contract specifies how the
surplus from the takaful operations is to be
shared between the takaful operator and the
participants. Looses are borne by the
participants as the capital providers.
However, to protect the interest of the
participants, the takaful operator is required
to observe prudential rules including
provision of interest-free loans by the
operator to the takaful risk funds in the