TUTORIAL ISB 658 - TAKAFUL

1. Elaborate the evidence for the permissibility of Takaful in Islam.

Takaful is an Islamic Insurance system, an alternative of conventional insurance wherein all

participants contribute the funds in a pool and share the risks according to rules of mutual
understanding, cooperation and contribution. Takaful is a common rules of mutual
understanding, cooperation & trust, all participants are safeguarded against the financial
risks.

Therefore, here are the evidence for the permissibility of Takaful in Islam according to
Hadith Sahih muslim “All Muslims should live together with love, peace and harmony and it
should exemplify like a human body. If there is a pain or trouble in one part of the body,
then whole body is affected with the pain and fever”. This is the case with Muslims, if one
Muslim is in trouble than all the Muslims should feel the pain which means all must try their
best to help him get out from trouble. Therefore, Takaful is based on the same principal of
helping and assisting each other (participants) in times of trouble and safeguard against
financial crisis.

In Quran, In Surah Al-Maida verse 2 said “Help you one another in Al-Birr (righteousness)
and At-Taqwa (virtue, and piety)”. Which means Takaful is based on this concept of
contribution and cooperation with each other.

2. Explain 3 differences between Takaful and insurance.

 In conventional insurance, the insured substitutes certainty for uncertainty. In return

for a predetermined payment, the premium, he/she transfers to the insurer the
possible economic losses from stipulated risks. In Islamic insurance, the participants
share all risks mutually and no transfer of risk is involved.
 Conventional insurance companies are motivated by the desire for profit, while
Islamic insurance companies are non-profit making, the shareholders not being
entitled to share in the profits of the business although they are entitled to charge
fees for their services and share in the investment returns of funds managed by
them
  The policy-holders in a conventional insurance company have no right to vote in the
elections of the directors of the company or to see the annual accounts of the
company, while in Islamic companies; these facilities are available to all participants
who pay a certain stipulated amount of premiums (contributions).
 In a conventional life insurance policy, the agent's payments are paid out of the
insured's paid premiums, whereas in the Islamic model, the agents work for the
company and thus are paid by the company.
3. Explain the effect of section 16 in IFSA 2013 and what your opinion on this matter is.

The IFSA 2013 requires a takaful operator with a composite license to separate its Family
Takaful business from its General Takaful business. However, the TA 1984 allowed takaful
operators to carry on both businesses under the same company. The affected takaful
operators are given a grace period of five years from the appointed date 29 to comply with
the requirement of Section 16(1) of the IFSA 2013. Any takaful operator who contravenes
Section 16(1) of the IFSA 2013 commits an offence and shall, on conviction, be liable to
imprisonment for a term not exceeding eight years or to a fine not exceeding RM25 million,
or both. From this situation, the intention of the regulator is to expand the growth of
General Takaful business and Family Takaful business. Further the regulator intends the
takaful operator to compete with the conventional Insurance practices.

4. Explain 2 differences between Family Takaful and General Takaful.