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INSURANCE & TAKAFUL

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INSURANCE & TAKAFUL Introduction of Modern Insurance Evaluation of Insurance Business from Islamic Point of View Islamic Alternatives: (Review of Existing ... – PowerPoint PPT presentation

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Title: INSURANCE & TAKAFUL


1
INSURANCE TAKAFUL
  • Introduction of Modern Insurance
  • Evaluation of Insurance Business from
    Islamic Point of View
  • Islamic Alternatives (Review of Existing
    Experiences of Takaful)

2
Risk and Insurance
  • Risk and uncertainty are fundamental facts of
    life. All human activities are subject to risk,
    which may lead to financial or physical losses to
    him. Insurance is a device to cover the losses
    arise due to occurrence of some undesired event.

3
Methods of Handling the Risk
  1. Risk Avoidance
  2. Risk Retention
  3. Risk Reduction
  4. Risk Transfer
  5. Risk Sharing

4
we may define insurance as follows
  • Insurance is an economic device whereby the
    individual substitutes a small certain cost (the
    premium) for a large uncertain financial loss
    (the contingency insured against) that would
    exist if it were not for the insurance.

5
CLASSIFICATION OF INSURANCE BUSINESS
  • By Type of Products
  • i) Life insurance
  • ii) General insurance
  • iii) Liability insurance

6
Advantages of Insurance
  • Guarantee of Smooth functioning of Business
    Activities
  • Improvement in Saving Habit in the Society and
    Availability of Huge Funds for Productive
    Investments
  • Help of Individuals in Case of Financial Loss

7
Shariah Position of Insurance
  • Opinion of Shariah scholars is sharply divided.
  • We can classify them into three major groups.
  • Those who consider both the concept and practice
    of commercial insurance un-Islamic.
  • Those who are in agreement with the present
    insurance and find nothing wrong in it.
  • Those who accept the concept of insurance, but
    find prohibited elements in its present practice.

8
Major Arguments Against Insurance
  • Element of Riba
  • Element of Gambling
  • Element of Gharar
  • Unlawful appropriation of others property
  • Violation of law of inheritance in case of life
    insurance.

9
Establishments of Islamic Insurance Companies
  • In 1979, the first Islamic Insurance Company was
    established in Gulf under the title of "Islamic
    Mudarabah for investment, Savings and Takaful
    between Muslims" by Islamic Company for
    Investment in Gulf. After that many Islamic
    Insurance companies started business under the
    title of Takaful.
  • There are about 50 companies presently
    undertaking Takaful business. About half of them
    in the Middle East, 10 in Europe and America and
    about 15 in South East Asia. A broad estimate of
    the total Takaful industry in 2000 is
    approximately US550m for both life and non-life
    business.

10
WORKING OF THE TAKAFUL BUSINESS
  • Takaful Business is based on the concepts of
    Mudarabah and Tabarru. Involvement of these two
    Islamic forms of business eliminate the elements
    of Riba and Gharar from the insurance contract
  • Each Takaful instalment is divided and credited
    into two separate Accounts namely, the
    Participants's Account(PA) and the Participants
    Special Account(PSA). A substantial proportion
    of the installments is credited into the PA
    solely for the purpose of savings and investment.

11
  • The balance of the installments is credited into
    the PSA as tabarru' for Sharikah Takaful
    Malaysia to pay the Takaful benefits to the
    heir(s) of any participant who may die before the
    maturity of the contract.
  • The amount accumulated in the PA is invested in
    various business according to Islamic financing
    techniques, and the resultant profits are divided
    between the company and the participants
    according to the agreed upon ratio, e.g., 30-70.
  • The participant's share is calculated according
    to their individual share in the PA, and credited
    into their respective accounts, the PA and the
    PSA.

12
Mudarah Model
13
Wakalah Model
14
Waqf Model
15
Payment of claims
  • Should the Participant die or suffer Permanent
    and Total Disability in the fifth year of
    participation, Takaful benefit will be paid in
    the following manner-
  • i. From Participant's Account RM 4,890
  • (RM978 x 5)
  • profit if any, say RM 400
  • ii. From Participants Special RM 5,000
  • Accounts (RM1000 x 5)
  • Total Takaful Benefit Payable RM 10,290

16
In case the Partcipant survived
  • Should the Participant survive until the maturity
    of his FTP, payment of Takaful benefit will be
    made to him as follows-i.From his Participant's
    Account RM 9,780
  • (RM978 x 10)
  • profit from investment RM 1,800
  • ii.From Participants Special RM XXXX
  • Account
  • Total Takaful Benefit RM11,580 surplus
    determined by SharikatTakaful.
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