MEANING OF TAKAFUL

The word takaful comes from the Arabic root word Kafala, meaning "guarantee".

Takaful means mutual protection and joint guarantee.

Islamic Insurance System based on the principles of solidarity and mutual assistance

The Fiqh Council of Organization of Islamic Conference in Jeddah resolved:

Conventional insurance as presently practiced is Haraam,

Cooperative insurance (Takaful) is permissible and fully consistent with Shariah principles.

Is All Risk Protection (Insurance) Haraam (Prohibited)???

REASONS: Conventional insurance is prohibited for Muslims (because it contains the elements of Riba, Al Maisir, and Al Gharar).

Takaful provides risk protection in accordance with Shariah based on the principles of Ta’awun, brotherhood, ethical operations.

TAKAFUL REFERNCE FROM QURAN

“And help each other in righteousness and piety,”(Al Maidah: verse 2).Takaful is a form of mutual help (ta’awun) in furthering virtue by helping others who are in need

TAKAFUL REFERNCE FROM QURAN

The Holy Quran says: “Allah intends for you ease, and He does not want to make things difficult for you.” (2:185).It further says:

“Muslims are brothers to one another”(Surah Hujarat:10)

TAKAFUL REFERENCE FROM HADITH

The Prophet said, "Tie your camel first, then put your trust in Allah” (Reported by at-Tirmidhi and Ibn Majah).

A believer is like a brick for another believer, the one supporting the other. (Sahih Muslim)

HISTORY OF TAKAFUL

The Islamic scholar’s research establishes the fact that the insurance was practiced in the period of the Prophet (ملسو هيلع هللا ىلص).

Two Important Issues:

First:

A person was bound to pay the blood money (Diyat) if he had committed a murder un-intentionally.

It was equal to one hundred camels.

It was so high that hardly anyone could afford to pay

HISTORY OF TAKAFULSecond:

A person had to pay ransom money (Fidya), if he happened to be captured by the enemy.

Practically he would become a slave

He had no chance to get free unless he paid the cost equal to one hundred camels.

Again the cost was so high that hardly anyone could afford to pay.

UNITS OF “MUTUAL HELP” The Prophet Mohammad (ملسو هيلع هللا ىلص) established the units of “Mutual Help” or today’s takaful in every tribe of Madinah

OPERATIONS:

Payment of blood money or Ransom

Help from other units.

Involvement of Central Government

1979 – Islamic insurance company (Sudan)1979 - Islamic Arab Insurance Company (UAE) 1984 – Takaful Act (Malaysia)1985 –Takaful Malaysia Berhad (Malaysia)1997 –Re-takaful company (Asean Retakaful International, ARIL)

HISTORY OF TAKAFUL

SOME SPECIFIC TERMINOLOGIES:

Takaful/Islamic Insurance Conventional Insurance

Contribution Premium

Participant Policyholder/Insured

Membership Policy

Benefits Claims

Re-takaful Re-insurance

Takaful Contribution Risk Charge

Surplus Underwriting Surplus

VISITED TAKAFUL COMPANIES:

PRACTICAL WORK

PAK-KUWAIT TAKAFUL CO. LtdPAK-QATAR TAKAFUL CO. Ltd

PAK-KUWAIT TAKAFUL CO. LTD

The PKTCL is the first ever truly leading Islamic Shariah compliant takaful company in Pakistan. The PKTCL is a multinational joint venture partnership between Pakistan, Kuwait, Malaysia, Saudi Arabia and Sri Lanka.

Re-Takaful company: Re Takaful of Qatar

Paid up Capital: 40 billion

Growth Rate: 8% in 2013

Earnings per share: Rs. 2.04 in 2013

PAK-QATAR TAKAFUL CO. LTD

In Pakistan the PQTCL Incorporated in 2006, and began operations in 2007.

Company is registered and supervised by the SECP.

An independent Shari’ah Supervisory Board chaired by Mufti Muhammad Taqi Usmani, certifies all products and operations for Shari’ah compliance.

Re-Takaful Company:

1. Re-Takaful of Qatar

Paid up Capital:Pak-Qatar Family Rs. 533 million

Pak-Qatar General Rs. 307 million

Motor Takaful Fire Takaful Home Takaful Machinery breakdown Takaful Money Takaful Fidelity Takaful Travel Haj and Umrah Takaful Plate glass Takaful Marine Takaful

Endowment plane Life Takaful Retirement plan Childs education & marriage

General Takaful

Family Takaful

Takaful endowment plan

This plan provides takaful coverage upon Death or Total and Permanent Disability and additional coverage for death. This plan is designed to help achieve medium to long term financial goals such as child’s education , marriage as well as wealth accumulation for retirement purposes.

Family Takaful(Life Takaful)

Practical information: Required CNIC Monthly income must be at least Rs. 12000 Age limit to get this policy is 18-65 years. Up to the age limit of 55 this policy is provided with out condition of

any decease. Death bed person can also get this policy. We can not surrender before 2 year. In case of suicide company also provide compensation but if suicide

attempt after 2 years of the policy. In case of death , death certificate is required.

Motor Takaful offers comprehensive coverage for private and commercial vehicles. Motor Takaful offers protection from losses incurred due to traffic accidents and legal liabilities that might arise due to accidents.

Comprehensive Motor Takaful provides maximum coverage against theft accidental damage third party liability

The cover includes losses due to external accidental means, Fire strikes natural calamities

Third Party liability includes

Property Damage, Bodily Injury Death, are additional features of the policy.

Practical information: Provide car takaful policy for 1 year. At the rate of 4% p.a

Only provide policy for those vehicles which are not old more than 5 years from the year of launch.

After 1 year we can renew the policy.

In case of renewal depreciated value must be consider and rate apply on this value. Depreciation rate is 10%

Vehicles which takaful is available can be

Private car & Motorcycle Commercial car( trucks etc) Factory car

Documents required:

1. Copy of NIC/NTN2. Copy of vehicle registration book.3. Tracker installation certificate/invoice(if installed with

vehicle)

Health Takaful

Health Takaful brings peace of mind to you by providing Islamic Health Takaful solutions which gives financial

protection in case of any unfortunate illness leading you to hospital. It safeguards you by covering much of what you

would be expected to pay.

What does Health Takaful Policy offers?

Hospital care:

This benefit covers hospitalization due to illness, disease, surgery or accident up to agreed available limits.

Critical illness care:

It covers expenses for all medically necessary treatments specified in the policy.

Additional Benefits:

International cover :

The policy covers emergency hospitalization during (official) overseas travel of covered participant. However, the

hospitalization expenses will be reimbursed in-line with the treatment cost incurred in Pakistan (Subject to the availability of

the limit).

Takaful Contribution paid by Participant

General TakafulFund

General TakafulFund

Operational Cost ofTakaful

Surplus(Profit)

Participant’sSharefrom Surplus

Company’s Share from Surplus

Investment By Company

Profit From Investments

Company

Participant

Mudaraba Model

The surplus is shared between the participants with a

takaful operator. The sharing of such profit (surplus) may be in a ratio 5:5 , 6:4 etc. as mutually agreed between the contracting parties. Generally, these risk sharing arrangements allow the takaful operator to share in the underwriting results from operations as well as the favorable performance returns on invested contributions.

Mudaraba Model

According to officer of pak qatar takaful mudarba model is not practically use because in mudarba 5 to 6 or may be 10 members involve but we want to cover whole community.The Takaful operator gets the Surplus, but does not bear the loss. Therefore, Shariah scholars have raised serious objections to this model.The requirement to provide Qard al Hasan (in case of a deficit) in a Mudarabah contracts against the concept of Mudarabah by definition, which is a profit-sharing contract.Further, a Mudarib cannot be a guarantor to the financier.

Some issues of mudarba

It is a WAKALAH waqf model with a separate legal entity of WAQF in-

between. The relationship of the participants and the operator is directly with the

WAQF fund. The operator is the ‘Wakeel’ of the fund and the participants pay contribution to the WAQF fund by way of Tabarru.

Losses to the participant are paid by the company from the same fund. Operational expenses that are incurred for providing Takaful services are also

met from the same fund.

Wakala -Waqf Model

ParticipantsParticipants Investment fund(PIA)

Operator/WakeelWaqf fund

Contribution

Profit of investment

Payment of claims and surplus(if any)

Contribution for takaful benefits

Fee for operating waqf fund

Fee for investment management

Wakalah Waqf model

Case:Mr. fahad is a salaried person 35 years old. His monthly income is 50,000. he wants to purchase policy of family takaful from pak qatar family takaful for 10 years.

Solution:According to the rules of company contributions in the form of tabaru charge from him is also 50000 rupees on the basis of his monthky income. Coverage provide to him according to policy wil be Rs.10,00,000. In case of death of person face value of policy will provide to him that is 10,00,000. But in case no loss occur then at the end of policy period face value or cash value which ever is higher will be paid to the participant.In case of surrender before 20 years no coverage will provide to the participant but the portion of tabarru that is assigned to investment will be returned to him. In case of surplus in waqf fund at end of year will also refunded.

Case of Mr. Arshad:

In family takaful you become a member by paying only one contribution. If after paying 1st contribution loss occur even then whole coverage provide to the nominee of participant.

Mr. arshad was a customer of pak qatar takaful company. He was resident of peoples colony. He was owner of burger shop. His monthly income was 25000.He purchases the takaful policy from company in Dec 2013 for 10 years. His age was 35 years.Yearly contribution by Mr. Arshad was 25000 according to his income.But after making only one contribution he died. Company paid the face value of policy that is 500000 according to contribution.

Family or life takaful

• Pak Qatar provides Endowment plan to participants in which two elements are covered.

1.protection element. 2.investment element.

Family Takaful Model of Pak Qatar

Withdrawal

options

Top up

Free look period

Maturity

Permanent partial

Benefits

Where Pak Qatar Takaful Co. invests the funds of PIA

1. Investment in Shariah compliant Government securities

2. Investments in immoveable property3. Investments in Joint Stock Companies

investments in non-Shariah compliant preferred stocks and debentures are not

allowed

4. Mutual funds operating under the Shariah principles and approved by the Commission

5. Financing under Islamic modes through the Islamic banks and financial institutions.

6. Placement of excess funds with banks and Islamic financial institutions.

Investment management• Profit on investment will depend upon the strategy

chosen by the participant. And he also has option to move or switch between these 3 types of strategies

at any time during the year Fund (strategy) Potential reward Unit price

Conservative Low Risks and Steady Growth 1024

Balanced Balanced Risks and Balanced Growth 1049

Aggressive High Risks and High Returns 1075

In general Takaful pak Qatar company provides term plan to participants in which there is only protection element

A point to remember is that there is no PIA in general takaful.

General Takaful Model

Participant takaful fund (PTF) ,waqf

PTF is a separate and independent legal entity capable

of having title of ownership and possession of assets whether in the form of money, movable and immovable properties

it established by the shareholders of Takaful Company through the contribution of “Ceding amount‟ (part of the Capital) to compensate the beneficiaries.

Ceding amount of pak Qatar takaful is Rupees Five Hundred thousand only(Rs.500,000)

Calculation at the end of the year in PTF

The surplus for each period would be calculated in the following manner:

Income of PTFBalance in Fund brought forward Add: Takaful Contributions received in the PTF Add: Investment income earned by PTFAdd: last year’s Reserves to be brought forward Add: Any donation made by the Takaful Operator Total net incomeless: Claims and expenditures Incurred Less :Takaful Operator’s Fees Less:Takaful Operator’s wakalatul istimar fee(40%)

Excess of income over expenditureLess:Donation paid by the PTF on the advice of the Shariah Board Less: Reserves maintained for current year

Surplus for the year

(Rs)

200,000800,000400,000100,00050,000

500,000240,000160,000

200,000

150,000

(Rs)

--------------1550,000

(900,000)--------------650,000

(350,000)--------------300,000

Technical Reserves

1. Unearned contribution reserves2. Incurred but not reported claims’ reserves3. Deficiency reserves 4. Reserve for Qard -e- Hasana to be returned

in the future.

INSURANCE VS TAKAFUL

CASE STUDY

Case StudyMr. Ahmad bought Honda City Aspire 2015 with a market value of almost Rs. 20,00,000. He wants to get auto-takaful.

Pre-Inspection

The following things are inspected before takaful:-o Car Companyo Modelo Year of Manufacturingo Current Conditiono Trackero Damages

DocumentsThe copies of following documents are required:- CNIC Registration Documents Driving Lisence Tracker Certificate

Contribution

Contribution (Premium):- 4 % 0f 20,00,000 80,000/-

2nd Year:- 10% of 20,00,000 200,000/-

20,00,000 -2,00,000Dep. Amount 18,00,000

Contribution 2nd Year:-

4% of 18,00,000 72,000

3rd Year:-

10% of 18,00,000 1,80,000 18,00,000 -1,80,000 Dep. Amount 16,20,000Contribution will be: 4% of 16,20,000 64,800

Case StudyMr. Ahmad bought Honda City Aspire 2013 with a market value of almost Rs. 20,00,000. He wants to get auto-takaful now in 2015.

Contribution

Contribution (Premium):- 1st Year:- 20% of 20,00,000 400,000/-

20,00,000 -4,00,000Dep. Amount 16,00,000

Contribution 1st Year:-

4% of 16,00,000 64,000

2nd Year:-

10% of 16,00,000 1,60,000 16,00,000 -1,60,000 Dep. Amount 14,40,000Contribution will be: 4% of 14,40,000 57,600

3rd Party Liability

Third party liability provides coverage when a policyholder or insured driver is responsible for an automobile accident

RefundRefund will be provided before the end of policy period.

Before 6 months 5 0 %

After 6 months 25%

Transferable Yes, this is transferable if it is informed to the Takaful Co.

INSURANCEVS

TAKAFUL

Point Of Differences Conventional Insurance Takaful

Risk mitigation

Risk is transferred from insured person to insurance company in consideration of premium paid by insured

It is based on mutuality hence the risk is not transferred but shared by the participants who form a common pool. The company only acts as a manger of the pool.

Key concept

It contains the element of riba and gharrar

The element of gharrar is brought down to acceptable levels under shariah by making contributions as conditional donations for a good cause.

Mode of contribution

It contains the element of maisir in which the insured pays the primium in the exception of gain.

The participants pay the contribution in the spirit of purity and brotherhood hence it negates the element of maisir.

Point Of Differences Conventional Insurance Takaful

Investment

Preferred stocks and other fixed interest bearing instruments.

Shariah compliant investment. For example common stock, islamic banks.

Surplus & profits All surplus & profits belong to the company except in permanent life insurance

Surplus and profits belongs to waqf fund.

Surrender

Term life insurance: nothing is paidWhole life insurance: cash value is paid.

In general takaful: surplus is paidIn family takaful :cash value plus surplus ( if any) is paid.

Point Of Differences Conventional Insurance Takaful

Investment ownership

Investment is made by the company on its own behalf.

Investment portion is of the participant, he can withdraw at any time after 2 years.

Catastrophic Losses

In case of more losses occur company is in deficit then no coverage provide to insured.

In case of deficit qard-e-hasna allot to waqf fund to provide coverage to the participant.