Use of the waqf (endowment)
concept in takaful
A waqf is
an inheritance created by a person who donates an asset that they own to an
endowment vehicle, with the intention of benefiting specified beneficiaries.
The benefactor can still manage the holding or may pass management
responsibility to other specified members. In the United Kingdom and other
jurisdictions, where specific waqf prescription
does not exist, trusts can work well similar to endowment vehicle.
In the takaful arena,
the use of the waqf concept has been increasingly applied. In
Pakistan, for example, a waqf takaful model
has been used. The waqf founder initiates a takaful operation by dowering a sum of money to
the waqf. Contributors then participates to the waqf with
the objective of giving out and helping participants who are affected by
specified events, risks or disasters.
In this type of scheme, all dowry returns and any
underwriting surplus remain within the waqf and
are not shared with the donators. The participants at the outset agree that any
surplus should be kept and used by the charitable waqf.
A waqf may appoint external providers to supply
services such as investment management.
A more common model is to combine a waqf with
a wakala contract, and in some circumstances with mudarabah as well. For example:
A takaful manager provides underwriting services on
a wakala basis.
The operator also provides speculation management
services on a mudarabah basis.
Any spare generated by the takaful pool
is donated to a waqf, instead of being redistributed back to contributors.
Using a waqf in
this way can help to reduce a practical issue of redistributing surpluses back
to contributors. Insurance is a dynamic activity with a continuous stream of beginners
and leavers and new claims. Moreover, claims can sometimes be made some
considerable time after the incident giving rise to the claim has occurred. As
a result, accurately ascertaining what proportion of the surplus a member is
entitled to can be difficult. This issue is resolved if all contributors agree
that any excessive should be paid to a charitable waqf.
TYPES OF TAKAFUL POLICY
Conventional insurance is broadly divided into life
insurance and general insurance. In a similar way, takaful can be broadly categorised into general and
like general insurance, seeks to provide accidental coverage suffered by replacing value equivalent to that
prior to the damage or loss. The risks covered are generally short-term in
nature, such as protection against car accidents, travel problems, fire, damage
to property and so on. Within this space, protection for businesses such as
professional indemnity, employer liability and public liability cover are all
possible. General takaful policies usually last one year and focus almost
entirely on protection as opposed to investment return and growth. Hence the
activities of the TO or the mutual takaful pool
are centred around underwriting.
Takaful can cater for all risks, including death – to
provide intervention to the family of the deceased is very much in line with
Islamic values. Family/life takaful plans
are generally schemes that provide coverage to a person wishes to save a sum of
money for dependants, should the participant die prematurely. This cover is
effectively a long-term savings plan, typically of 10–30 years duration. Given
the long-term savings nature of these policies, contributions by participants
are usually split into an underwriting pool and an investment pool. If the
participant dies during this period, the policy provides some financial
protection for the family and dependants left behind; otherwise the policy
matures at the end of the contracted period.
Such policies can also usually be redeemed at any time
up to maturity. Family/life takaful therefore
goes beyond simply insuring against the event of death; it also enables the
participant to save a capital sum on survival.
There are three typical scenarios:
before plan matures: heirs to the affected’s estate receive
all of the monies accumulated in the investment pool based on the deceased’s
contributions into the pool and the returns earned on those contributions. In
addition, the heirs will receive from the underwriting pool an amount of money
equivalent to all remaining or outstanding total donations that would have been
made if the participant had survived until maturity of the takaful plan.
at maturity: if the participant survives until
maturity of the plan, he or she will typically receive the monies accumulated
in the investment pool (as above) plus a proportion of the excess, if any,
arising in the underwriting pool.
benefit: this arises when a participant decides
to end his policy before maturity. Typically he or she receives monies
accumulated in the investment pool on his behalf, but does not receive any
monies from the underwriting pool.
It is possible to provide takaful such that a person’s family receives a payout on
death, whenever that occurs. This is rare because life cover is invariably a
long-term policy; in takaful, the hard cash in the pool belong to the members and
hence this is suited to a plan in which the member benefits from investment and
Malaysia is a leading takaful provider in Malaysia. It
provides both family and general takaful products. On the
family side it provides protection for health problems (paying for medical
fees, etc.), protection against the risk of not being able to pay for home
finance payments, and protection against death before a certain age.
On the general takaful side
it offers protection against fire, damage to property, motor accidents and
personal injury, and a multitude of protection products for