Takaful Models

A. Mudaraba Model

• The surplus is shared between the participants with a takaful operator. The sharing of such profit (surplus) may be in a ratio 5:5 , 6:4 etc. as mutually agreed between the contracting parties.

• Generally, these risk sharing arrangements allow the takaful operator to share in the underwriting results from operations as well as the favourable performance returns on invested premiums.

B. Wakala Mode

• Cooperative risk sharing occurs among participants where a takaful operator earns a fee for services (as a Wakeel or Agent) and does not participate or share in any underwriting results as these belong to participants as surplus or deficit.

• Under the Al- Wakala model, the operator may also charge a fund management fee and performance incentive fee.

C. Wakala-Waqf Model

• The relationship of the participants and the operator is directly with the WAQF fund. The operator is the ‘Wakeel’ of the fund and the participants pay contribution to the WAQF fund by way of Tabarru.

• The contributions received would also be a part of this fund and he combined amount will be used for investment and the profits earned would again be deposited into the same fund which also eliminates the issue of Gharar.

• Losses to the participant are paid by the company from the same fund. Operational expenses that are incurred for providing Takaful services are also met from the same fund.

       Conventional Insurance VS Islamic Insurance

Insurance

Takaful

Commutative contract

Non – Commutative contract

Two parties. Insurer (company), Insured (Policy holders)

Three parties company, policy holder, pool

The premium comes in the ownership of company.

Takaful company does not become owner of premium

Covering of risk is duty of company

Covering of risk is duty of company

There is only one contract i.e. commutative contract.

There is a bunch of contracts. (Four contracts as described before)

Only insurance company is insurer

Takaful company is not insurer but policy Holders are insurers & insured among themselves.

Accounting Difference i.e. based on one contract

Accounting based on bunch of contracts

Surplus is not returned to policy holders totally or partially

Surplus is returned to policy holders.

Pool of Insurance company is not a legal identity

Pool of Takaful Company is a legal identity

There is one relation in insurance.

there are a different relations at different stages in Takaful