General insurance
The Takaful business is divided into two major categories: Family Takaful and General Takaful. General Takaful schemes are about mutual co-operation to offer all kinds of non-life protections in accordance with the principles of the Shari’ah. It provides insurance to the diverse needs of individuals and businesses to cover against unpredicted material loss or damage threatening properties, assets or belongings of participants. General Takaful is a short-term scheme, settled usually on an annual renewal basis, and as in Family Takaful, all participants are expected to mutually contribute premiums into a common pool managed by the Takaful operator and agree to indemnify those participants who suffer from an insured peril. The amounts of participants’ contribution are determined by the terms agreed in the contract, by considering the nature and value of the insured asset and risk involved.
The main difference between the Family Takaful and General Takaful is the way contributions are operated in fact; Family Takaful schemes are about risk-only joint-guarantee agreements while family Takaful schemes are investment-oriented agreements. In fact, General Takaful payments are not divided into two separate accounts as they are treated only as Tabarru’. The Takaful operator raises the Tabarru’ fund, and invest the remainder of the fund after deducting the operational cost of the scheme. If any participant suffers a loss or damage, then he will be compensated from this fund, by considering the level of occurred losses. Any profit or return from the investment is returned back to the fund. And unlike Family Takaful, net surplus in the General Takaful Fund is shared between the participants and the Takaful operator. In addition, the profits sharing will exclude participants who get compensation from their claims.
The main difference between the Family Takaful and General Takaful is the way contributions are operated in fact; Family Takaful schemes are about risk-only joint-guarantee agreements while family Takaful schemes are investment-oriented agreements. In fact, General Takaful payments are not divided into two separate accounts as they are treated only as Tabarru’. The Takaful operator raises the Tabarru’ fund, and invest the remainder of the fund after deducting the operational cost of the scheme. If any participant suffers a loss or damage, then he will be compensated from this fund, by considering the level of occurred losses. Any profit or return from the investment is returned back to the fund. And unlike Family Takaful, net surplus in the General Takaful Fund is shared between the participants and the Takaful operator. In addition, the profits sharing will exclude participants who get compensation from their claims.
Aspects of General Takaful
General Takaful schemes are about meeting the needs for protection of individuals and businesses in relation to defined events that may occur on a short-term basis. Like Family Takaful, participants of General Takaful also enter into an agreement based on Wakalah, Mudarabah or a hybrid combination of both. The participants pay all Takaful contributions as Tabarru'; their contributions are credited to the General Takaful fund of the Takaful company. This fund is invested by the Takaful operator as a Mudarib or a Wakeel in line with the virtues of Shari’ah and the profit generated from such investment is pooled back to the fund.
The Takaful operator indemnifies participants who suffered a loss consequent upon the occurrence of a catastrophe or disaster that is clearly defined in the contract. According to the way participants’ contributions are allocated internally, the General Takaful fund can pay for operating costs of general Takaful business that may include fees, profit shares, re-Takaful expenses in addition to provisions for setting up any contingency and special reserves. Any net underwriting surplus resulting from the fund after deducting all these costs will be distributed between the participants and the operator on expiry of each insured’s insurance policy; the distribution uses the ratio agreed in accordance with the conditions of the Mudarabah contract. This distribution may be replaced by a reduction in participants’ instalments to avoid the element of Riba in the contract. Participants who may have incurred any claims or have received any Takaful benefits are excluded from the profits sharing. If the total contributions and the income from investments cannot cover all claims and expenses during the period, the participants may be required to pay additional premiums.
The Takaful operator indemnifies participants who suffered a loss consequent upon the occurrence of a catastrophe or disaster that is clearly defined in the contract. According to the way participants’ contributions are allocated internally, the General Takaful fund can pay for operating costs of general Takaful business that may include fees, profit shares, re-Takaful expenses in addition to provisions for setting up any contingency and special reserves. Any net underwriting surplus resulting from the fund after deducting all these costs will be distributed between the participants and the operator on expiry of each insured’s insurance policy; the distribution uses the ratio agreed in accordance with the conditions of the Mudarabah contract. This distribution may be replaced by a reduction in participants’ instalments to avoid the element of Riba in the contract. Participants who may have incurred any claims or have received any Takaful benefits are excluded from the profits sharing. If the total contributions and the income from investments cannot cover all claims and expenses during the period, the participants may be required to pay additional premiums.
