Glossary Of Takaful Terms

Glossary Of Takaful Terms

The language of Takaful can be quite complex and confusing. Below are some commonly used insurance terms and their meanings. This information is for educational purposes only and should not be relied upon to form professional opinions on coverage issues.

  • A
    • Assurance

    • Insurance in a conventional insurance policy. It is the “sharing” of risk that comes with mutual solidarity and guarantee as opposed to the “transfer” of risk that conventional insurance provides.

    • Average Clause

    • Stipulates that a takaful fund is only liable for such proportion of the loss as the sum covered bears to total value at risk.

  • C
    • Claims

      Notification to a takaful operator that payment of an amount is due under the terms of the certificate.

      Claims Ratio

      The ratio of net claims incurred to earned contributions.

      Contribution

      The amount payable by a Participant to an Operator under a Takaful Contract.

      Conventional Insurance

      Life or Non-Life insurance under the Ordinance including reinsurance, which is not Takaful as defined in clause (1xiv) of Section 2 of the Ordinance and Re-Takaful.

  • D
    • Designated Charities

      In the event that there is a surplus in the Takaful Protection Pool after all expenses have been deducted, than that Net Surplus will be donated to a designated charity or charities. Currently, those charities are; United Nations International Children's Emergency Fund (UNICEF), and/or the International Federation of the Red Cross and Red Crescent Societies (IFRC). The designated charities may be changed from time to time at the discretion of the Wakeel’s Oversight Committee provided such change is approved by the Shari'ah Supervisory Board. 

  • E
    • Earned Contribution

      Net contributions less provision for reserves for unearned contribution (RUC) at the year-end plus the RUC at the beginning of the year.

      Excess of Loss Treaty

      A type of retakaful treaty which provides that the retakaful operator pays all or a specified percentage of a loss arising from a particular occurrence or event (frequently of a more or less catastrophic nature) in excess of a fixed amount and up to a stipulated limit.

      Excess

      Deductible in a conventional insurance policy. It is the first amount that you have to pay on your own account towards each claim.

      Event of Loss

      An event that gives rise to a Loss as defined in the Policy. Loss means a loss to a Participant that is subject to compensation under the terms and conditions of the Policy. 

  • F
    • Facultative Treaty

      A retakaful contract under which a ceding takaful operator has the option to cede and the retakaful operator has the option to accept or decline individual risks.

      Family Takaful

      Takaful for the benefit of individuals, groups of individuals and their families, as provided under sub-section (2) of section 3 of the Ordinance.

  • G
    • General Takaful

      Takaful other than Family Takaful

      Gharar

      Arabic for uncertainty. One of three fundamental prohibitions in Islamic finance (the other two being riba and maisir). Gharar involves an unacceptable level of uncertainty or contingency in a contract. The prohibition on gharar is often used as the grounds for criticism of conventional financial practices such as short selling, speculation and derivatives.

      Gross Direct Contributions

      Contributions on original gross rate charged to clients in respect of direct takaful business Without any deduction for commission or brokerage.

      Group Family Takaful

      Family takaful (usually without medical examination) on a group of people under a master Certificate. It is typically issued to an employer for the benefit of employees, or to members of an association. 

  • H
    • Hibah

      Gift 

  • I
    • Indemnity

      Restoration to the claimant of a loss by payment, repair or replacement.

      Individual Family Takaful

      A contract that provides takaful benefits payable to an individual upon death/total permanent disability or periodic income to participant upon retirement.

      Investment-linked Takaful

      A contract where the certificate benefits at any time vary according to the value of the underlying assets at the time.

      Islamic Finance

      Financial services that meet the requirements of the Shari’ah, or Islamic law. While designed to meet the specific religious requirements of Muslim consumers, Islamic banking is not restricted to Muslims: both the financial services provider and the consumer can be non-Muslim as well as Muslim. Also called Islamic banking or Islamic financial services.

      Ijara

      An Islamic lease agreement. Instead of lending money and earning interest, ijarah allows the financial institution to earn profits by charging rentals on the asset leased to the consumer. Ijarah wa iqtinah extends the concept of ijarah to a lease and purchase agreement. 

  • M
    • Maisir

      Arabic for gambling. One of three fundamental prohibitions in Islamic finance (the other two being riba and gharar). The prohibition on maysir is often used as the grounds for criticism of conventional financial practices such as speculation, conventional insurance and derivatives.

      Medical and Health Takaful

      A contract that provides specified medical treatment benefits such as the cost ofhospitalisation, surgical and physician consultation fees against risks of a person being diagnosed with certain illnesses or having injury arising from an accident.

      Mortality Table

      A statistical table showing the death rate at each age, usually expressed as the number of deaths per thousand.

      Mudaraba

      A Mudarabah is an Investment partnership, whereby the investor (the Rab ul Mal) provides capital to another party/entrepreneur (the Mudarib) in order to undertake a business/investment activity. While profits are shared on a preagreed ratio, loss of investment is born by the investor only. The mudarib loses its share of the expected income.

      Mudaraba Based Contract

      A Takaful Contract based on the principle of Mudaraba.

      Mudharib

      Entrepreneur

      Murabaha

      A Murabaha is a purchase and resale transaction. Instead of lending money, the capital provider purchases the desired commodity from a third party and resells it at a predetermined higher price to the commodity user. By paying this higher price over installments, the commodity user has effectively obtained credit without paying interest.

      Musharaka

      A Musharaka is a partnership financing structure where profits are shared as per an agreed ratio whereas the losses are shared in proportion to the capital/investment of each partner. In a Musharaka, all partners to a transaction contribute funds and have the right, but not the obligation, to exercise executive powers in that project, which is similar to a conventional partnership structure and the holding of voting stock in a limited company. This equity financing arrangement is widely regarded as the purest form of Islamic financing. 

  • N
    • Net Claims Incurred

      Net claims paid less provisions for outstanding claims beginning of the year plus provisions for outstanding claims at the end of the year.

      Net Contributions

      Gross contributions less all retakaful contributions payable.

      Net Investment Income

      Returns on investments less rates and taxes.

      Net Surplus

      The net difference that is created in the Takaful fund after all expenses and management fees for the cost of administration have been subtracted. 

  • O
    • Operator

      A Takaful Operator or a Window Takaful Operator, authorized under Takaful Rules, 2012

      Operator Fund

      A fund set up by a General Takaful Operator which shall undertake all transactions which the Operator undertakes other than those which pertain Participant Takaful Funds set up by the Operator.

      Operating Protocol

      A document that outlines the terms and conditions under which the operator (Wakeel) and participant of the Takaful Policy agree to the guidelines and principles set forth between the two parties. This document also specifies the particular relationship in place between all participants, operators and administrators and ensures that all transactions that take place are done so according to Shari’ah law and dictates that all investments must be Shari’ah compliant. 

  • P
    • Participant

      A Peron who participates in a Takaful scheme and to whom a Takaful Contract is issued

      Participant Takaful Fund

      A Separate Fund set up into which the Participant’s Risk related contributions are paid and from which risk related benefits are paid out.

       

      Participants’ Membership Documents

      The documents detailing the benefits and obligations of a Participant under a Takaful Contract.

      Principal Officer

      A Person, by whatever designation called, appointed by a Takaful Operator and charged with the responsibility of managing the affairs of the Takaful Operator.

      Participants’ Account

      An account to credit a portion of contributions from the participant for the purpose of investment/savings

      Participants’ Special Account

      An account to credit a portion of contributions from the participant for the purpose of tabarru’

      Period of Takaful or Policy Period

      The length of time for which the Takaful protection will be effective.

      Proportional Treaty

      A contract under which a takaful operator and a retakaful operator participate proportionately in the contributions and losses on every risk that comes within the scope of the contract. 

  • Q
    • Qard

      Loan

      Qard Hasan

      An interest free loan from the Wakeel to the Takaful Protection Pool in order to meet any shortfalls that are created in the fund. 

  • R
    • Rabbul Mal

      Capital provider

      Ra’sul Mal

      Takaful Contribution

      Retention Ratio

      The ratio of net contributions to gross direct and retakaful accepted contributions less retakaful within Malaysia.

       

      Riba

      Interest generated in a conventional loan. The legal notion extends beyond just interest, but in simple terms Riba covers any return of money on money - whether the interest is fixed or floating, simple or compounded, and at whatever the rate. Riba is strictly prohibited in Islam. Investments made within a Takaful policy always avoid Riba in it its financial transactions.

      Rider

      An attachment to a certificate that modifies its conditions by expanding benefits. 

  • S
    • Shari’ah

      Islamic law as revealed in the Qur'an and through the example of Prophet Muhammad (PBUH). A Shari’ah compliant product meets the requirements of Islamic law. A Shari’ah board is the committee of Islamic scholars available to an Islamic financial institution for guidance and supervision in the development of Shari’ah compliant products.

      Shari’ah advisor or scholar

      An independent professional, usually a classically trained Islamic legal scholar that advises a financial institution on the compliance of its products and services with the Shari’ah, or Islamic law. While some financial institutions consult individual Shari’ah advisors, most establish a committee of Shari’ah advisors (often know as a Shari’ah board or Shari’ah committee).

      Shari’ah compliant

      An act or activity that complies with the requirements of the Shari’ah, or Islamic law. The term is often used in the Islamic banking industry as a synonym for Islamic—for example, Shari’ah compliant financing or Shari’ah compliant investment.

      Sum Covered

      Limit of liability in a conventional insurance policy. The amount shown in the Schedule being the maximum amount that the Risk Fund will pay for any one claim. The Sum Covered must be high enough to cover the cost of rebuilding the Building in the event of an Incident that completely destroys it.

      Sukuk

      Sukuk is the Arabic name for a financial certificate but can be seen as an Islamic equivalent of a bond. However, fixed income, interest bearing bonds are not permissible in Islam, hence Sukuk are securities that comply with the Islamic law and its investment principles, which prohibits the charging, or paying of interest. Sukuk is a certificate of equal value representing undivided shares in ownership of tangible assets, usufruct and services or (in the ownership of) the assets of particular projects or investment activity.

      Surplus at Valuation Date

      Excess of the takaful fund carried forward over the actuarial liabilities of a takaful fund of family takaful business. 

  • T
    • Tabarru’

      Premium in a conventional insurance policy. An Arabic word for donation, gift or contribution. In the Takaful contract, this is the amount contributed for the purpose of participating in Takaful scheme.

      Tijari

      Commercial business.

      Takaful

      Islamic insurance. Structured as charitable collective pool of funds based on the idea of mutual assistance. Takaful protection policies are designed to avoid the elements of conventional insurance (i.e., interest, uncertainty and gambling) that are problematic for Muslims. Takaful literally means mutual protection through co-operative risk sharing. It is insurance that avoids prohibited elements of conventional insurance in accordance with the laws of Shari’ah.

      Takaful Benefit

      Any benefit, whether pecuniary or otherwise, which is secured by a Takaful Contract.

      Takaful Contract

      Any contract of Family Takaful or General Takaful.

      Takaful Operator

      A Registered Insurer who is authorized by the Commission to carry on Takaful business and not Conventional Insurance business.

      Takaful Protection Pool

      The total sum of the Contributions received by the Wakeel from the Participants together with investment returns generated thereon (if any) and which has been established voluntarily for the purpose of mutual protection and assistance of the Participants.

      Ta’min

      Insurance

      Total Loss

      A loss of sufficient size so that it can be said there is nothing left of value.  

  • U
    • Underwriting Profit / Loss

      Earned contribution income less net claims incurred, commissions and management expenses.

       

      Unearned Contribution Reserves

      Contributions already received in respect of risks which are still unexpired at the end of the accounting period. 

  • W
    • Window Takaful Operator

      A Registered Insurer authorized under Takaful Rules, 2012 to carry on Takaful business as Window Operations in addition to Conventional Insurance Business.

      Wali

      Guardian

      Wakalah

      Agent-principal relationship, where a person nominates another to act on his behalf.

      Wakalah based contact

      A Takaful contract based on the principle of Wakala (agency).

      Wakil

      Agent

      Wasi

      Executer

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