Documente Academic
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By :
Abdullah Aboobucker
Manager Corporate Risk Management Amana Takaful PLC.
What is Insurance? How Insurance Operates? Why insurance is not permitted by Shariah ? What is Takaful? How Takaful operates? Comparison on Takaful Vs Insurance Takaful Basics Takaful Worldwide Question & Answer
Insurance is a way of protecting against financial losses. For a payment (premium), an insurance company will take the responsibility of compensating financial losses.
Insurance Premium
Rs.1000/each from house owner
Insurance Company
Rs. 70 Million (100-30)
Insurance Company
A Significant amount of insurance companys portfolio is by interest based investments. In life insurance, the insured, on his death or maturity of the policy, is entitled to get much more than he has paid which shall be from the interest income of the company. As the Contract is a Commercial Contract, the excess on one side in the exchange between the amount of premium and the insured sum. Insurance is the sale of money for money, of a greater or lesser amount, with a delay in one of the payments.
whether a loss will occur or not is not known the time it will occur is not known the claim amount to be paid is not known
When a claim is not made, the insurance company may acquire all the surplus whilst the participant may not obtain any profit whatsoever.
The element of gambling exist in conventional insurance policies, wherein any of the two parties involved may win a sum of money from the other, but one of them is destined for total loss depending on the happening of an uncertain future event.
Islamic Insurance is a process of agreement among a group of persons to handle the injuries resulting from specific risks to which all of them are vulnerable. A process, thus initiated, involves payment of contributions as donations, and leads to the establishment of an insurance fund that enjoys the status of a legal entity and has independent financial liability. The resources of this fund are used to indemnify any participant who encounters injury, subject to a specific set of rules and a given process of documentation. The fund is managed by either a selected group of policyholders, or a joint stock company that manages the insurance operations and invests the assets of the fund, against a specific fee.
Takaful Contribution
Rs.1000/each from house owner
Rs. 65M
100,000 houses
Rs. 35 Million
Takaful Company
How
Takaful
is different from
Conventional Insurance ?
100,000 houses
Rs.1000/- each house owner
Insurance Premium
Belongs to Insurance Company
Insurance Company
Rs. 100 Million
100,000 houses
Rs.1000/- each house owner
Takaful Contribution
35 Million
Takaful Company
65 Million
100 M
For the Insurance Company = 100M 50M = Rs.50 Million For the Insurance Company = 100M 30M = Rs.70 Million For the Insurance Company = 100M 0M = Rs.100 Million For the Insurance Company = 100M 40M = Rs.60 Million
For Takaful Company - Rs.35 Million Surplus for Participants - Rs.15 Million (65M-50M) For Takaful Company - Rs.35 Million Surplus for Participants - Rs.30 Million (65M-30M)
For Takaful Company - Rs.35 Million Surplus for Participants Rs.65 Million (65M-0M)
For Takaful Company - Rs.35 Million Surplus for Participants - Rs.25 Million (65M-40M)
Rs. 40 Million
Even though Uncertainty on Claims Amount exist in both Conventional Insurance & Takaful, it has NO big impact on the revenue of Takaful
Insurance Premium
Investment
Investment Profits
Belongs to Insurance Company
Insurance Company
Investment Profits
35 Million
45 Million
Takaful Company
Investment
Investment Profits
Takaful Company
75 Million
Differences on
Technical Aspect
(Risk Pooling)
A Combination of Donation & Indemnity contract between individual policyholder & the fund, represented by the Takaful Operator
Takaful
Conventional Insurance
(Risk Trading)
A policy in the form of an exchange contract (Sale & Purchase) between insured & company; the subject matter providing indemnity by the company
Contract
Fund has legal Personality (on Shariah Perspective) Trustee and Entrepreneur of the fund
Shareholders
Owner of the Fund Insurer / Insured Policyholders pay premium to the insurer
Operator / Participant Participants make contributions to the scheme Will be distributed Participants among the
To Shareholders Account
Other Differences
In Takaful
Business is based on adl & ehsan (Justice & Goodness)
Example, takaful cover not provided for elements harming the society
Casinos
Takaful
Does not Invest on elements
prohibited by SHARIAH
100+ Takaful Companies in over 20 countries. Average growth rate higher than conventional insurance companies. Non-Muslims increasingly opting for Takaful products.
Essentials of Takaful
Intention (Niyyah)
Integration of Shariah Conditions Presence of moral Value and ethics No element of Prohibition (Haram)
Basics of Takaful
Donation (Tabarru)
Any Questions?
Thank You