What is Takaful Insurance?
Takaful in Arabic means "togetherness". It is an alternative mode of insurance, based on the principles of cooperation and support to other members of the society. Takaful respects the rules & regulations of the Shariah Law. The word "takaful" actually originated from the Arabic word "Kafalah" which means "pledge".
In other words, Takaful means mutual responsibility or guarantee. It is not a bilateral monetary transaction as is the case with conventional mode of insurance. Takaful system is based on mutual cooperation, assistance, protection & responsibility.
All the contributions are pooled together to create a fund so as to compensate those members who suffer loss and any surplus is refunded to non-suffering participants based on the agreed ratio.
What are the differences between Takaful & Conventional Insurance?
In conventional insurance, the Insurance Company sells the Policy for a premium and the Insured buys it by paying the premium. It is like a Sale & Purchase Agreement where the Insurance Company promises to provide protection in return for charging a premium
Policyholders have no relationship among themselves. The Insurance Company is responsible to pay claims from its own assets (insurance premiums and shareholder funds) and the profits generated belong to the Insurance Company.
How does the Takaful system operate?
As it is based on the concept of "togetherness" and "helping each other", the underwriting profit is shared among all participants who have not claimed during the year. In short, one cannot take advantage at another's cost.
Can you explain the principles of Takaful Insurance?
The basic principles are:
- Cooperation among policyholders themselves for their common good.
- The subscription by policyholder is treated as a donation to help those in need of assistance during the validity of the policy.
- Losses are shared and liabilities spread in accordance with the pooling system.
- Uncertainty is eliminated in respect of subscription and compensation.
Who are the parties in a Takaful Insurance?
The Company: Providing the insurance service.
The Takaful Participant: The person or entity who is covered against the risk of suffering a loss resulting from any accident (fire, burglary, motor, etc.).
What are the documents that constitute a Takaful Contract?
Proposal Form: The participant has to fill & sign the proposal form, which is considered as the basis of the contract.
Takaful Policy: This is the document which indicates the terms, conditions and procedure in case of any loss or damage suffered by the participant.
What is a risk?
Risk means the probability of an undesirable future event to happen, as a result of which financial loss will be suffered.
What is the Takaful Amount?
Takaful amount is the maximum liability of the Takaful Company towards a physical property.
How is my contribution calculated?
The contribution is calculated on the basis of the hazards associated with the risk in question. Usually, it is a percentage of the Takaful Amount (Sum Insured). It will vary depending on the status of hazards.
What is the Insurable Interest?
It means that the entity proposing insurance cover should have a legal & financial relationship with the subject matter being insured.
What is the Condition of Average?
It is a condition in some policy wordings making it compulsory for the Takaful participant (Insured) to declare the actual value of the property to be insured; otherwise his/her indemnity will be proportionately reduced.
What are material facts?
Those are facts relating to the subject matter of insurance. They have influence over the identification or quantification of risk. These facts have to be declared by the participants beforehand.
What is Subrogation?
The Takaful participant subrogates his/her right for claim recovery from a third party, who has caused damage to the insured interest, to the Insurance Company once he/she receives the claim amount from the Insurance Company.
What is Indemnity?
It is a principle of insurance, promising to place one who has suffered loss in almost the same financial status as before the occurrence of the loss.
What happens to my contribution if no claim during the policy period?
Upon expiry of the policy, if there is a surplus available from the Takaful fund declared for that month, the Takaful participant of that policy will be eligible to get the declared refund ratio as per agreement.
Can Non-Muslims take Takaful?
Of course, Non-Muslims are as welcome as Muslims in so far as he/she agrees to abide by the terms & conditions of the contract that are based on the Shariah Law. The same terms & conditions shall be applicable to both Muslims & Non-Muslims.