Takaful Insurance Flashcards
Why does the Middle East consider the conventional insurance market to be bad?
It contains elements of Ghara, Riba, Maysir
Riba
No equality between premiums paid and compensation received
Gharar
Subject matter of contract is not certain
Maysir
Policyholders are held to be betting premiums on condition that insurer will pay compensation in higher amount
“Takaful”
“Mutual Guarantee”
Takaful Act of 1984
Based on brotherhood, solidarity, mutual assistance
Tabarru
- Contract among participants
- Agreement by participants to give donations
- Purpose is to provide mutual indemnity to takaful participants
Wakalah
- Contract between participants and takaful operators
- Agency contract
- Participants appoint “Wakil” as operator to manage fun (entitled to agency fee)
Insurance v. Takaful: Contracts
Insurance: Exchange Contract
Takaful: Tabarru, Mudharabah, Wakalah contract
Insurance v. Takaful: Ownership
Insurance: insurer owns PH premiums
Takaful: operator is admin of fund
Insurance v. Takaful: Gharar, Riba, Maysir
Insurance: contains elements
Takaful: does not contain elements
Insurance v. Takaful: Investment
Insurance: investment based on interest
Takaful: shariah compliant investment
What does Shariah not allow?
- Investment-bearing assets
- Uncertainty
Characteristics of Takaful
- Risk Sharing
- Transparency
- Investment in Shariah compliant assets
- Operator paid fee
Models
- Mudharaba (profit-sharing)
- Wakala
- Hybrid
