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Takaful FAQs
Q) What is Insurance ?
A) It is a way of providing compensation for one who has suffered loss resulting from an unforeseen accident.
Q) What is Islamic Insurance/Takaful?
A) Takaful is an Arabic word, which means “togetherness”. It is an alternative to conventional insurance, and it is based on the principles of Co-operation and supporting other members of the community.
Q) Who are the parties in a Takaful Contract?
A) Any contract is made between two parties and a Takaful policy as such involves:
• The Company: Providing the service to the community.
• The Takaful participant: Who wishes to have cover against risk of suffering a financial loss resulting from fire, accidents, burglary, etc.
Q) What are the Elements of a Takaful Contract?
A) Proposal form: For all types of Takaful contracts, the participant has to fill a proposal form, duly signed by him and this is considered as the basis of the contract.
The Takaful policy: A document mentioning the terms, conditions and the procedure if one suffers loss and wishes to raise a claim on the company for reimbursement.
Q)What Takaful models are in practice?
A)There are mainly (3) models on which Takaful can be implemented
1) Mudaraba Model.
2) Wakalah Model.
3) Combination of both.
Q) What is Mudarba/Mudharabah Model?
A) In this model the entrepreneur or al-Mudharib (takaful operator) will accept payment of the takaful installments or takaful contributions (premium) termed as Ra's-ul-Mal from investors or providers of capital or fund (takaful participants) acting as Sahib-ul-Mal. The contract specifies how the profit (surplus) from the operations of takaful managed by the takaful operator is to be shared, in accordance with the principle of al-Mudharabah, between the participants as the providers of capital and the takaful operator as the entrepreeur. The sharing of such profit may be in a ratio 5:5, 6:4, 7:3, etc. as mutually agreed between the contracting parties
Q) What is Wakalah/Wakala Model?
A) In Wakalah Model, the surplus of policyholders’ funds investments – net of the management fee or expenses - goes to the policyholders. The shareholders charge Wakalah fee from contributions that covers most of the expenses of business. The fee rate is fixed annually in advance in consultation with Shariah committee of the company. In order to give incentive for good governance, management fee is related to the level of performance
Q) What is Sum Insured/ Takaful amount?
A)It is the maximum liability that a Takaful operator can hold towards the physical property
Q) What is Indemnity Takaful/Insurance?
A) Indeminity is a principle of Takaful/Insurance which provides that when a loss occurs, the participant/insured should be restored to the approximate financial condition occupied before the loss occurred-no better no worse
A) Subrogation is the substitution of one person in the place of another with respect to a lawful claim, demand or right against a third party, so that the substituted party succeeds to the rights of the other, or "stands in the shoes of" the other, with respect to the claim against the third party.
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