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LICENSING
Takaful Basic Examination
(TBE)
Disclaimer
The following contents were designed for training purposes by providing
a summary and general information about knowledge for potential
recruits. The content should not be considered as a sole information
source sufficient in itself to dictate any terms and conditions of any
activity relating to knowledge of the potential recruits.
House Rules
Give Respect & Earn Respect
1. punctual
2. hand phone on silent mode
3. no personal discussion
4. no sleeping, smoking & eating in the class
get involvedparticipate committed
TAKAFUL BASIC EXAMINATION
3 Topics
Module Topics
TBE A Basic Takaful and Medical &
Health Takaful
TBE B General Takaful
TBE C Family and Investment-Linked
Takaful
ContentsNo Item Description
1 Categories
Part A – Basic Takaful and Medical & Health Takaful
Part B – General Takaful
Part C – Family and Investment-Linked Takaful
2 No. of questions
3 Time to answer 2 hours
4 Type of question
Direct
Situation
I, II, III & IV
True/ False/Correct/
Incorrect/ Except
Contract/Act
5 Passing rate 55%
Part A (50 questions)
+
Part B (50 questions)
Part B (50 questions)
Part A (50 questions)
+
Part C (50 questions)
Part C (50 questions)
Course Objective
Takaful Basic Examination
Activity
Output
Outcome
Impact
• Familiarity with the industry and the business
• Obtain foundational knowledge to prepare for the mandatory
licensing examination by the Industry
• Takaful Basic Examination Tutorial Classes – Compulsory entry
requirement for all those who intend to be registered as Takaful
agents with Malaysian Takaful Association
• Imparting foundational knowledge for potential agents to
understand the industry and the business
• Pass the examination and obtain license to execute the business
TBE Overview (Key Result Grade)
A Passed with distinctions
B Passed with credit
C Passed
Y Failed by a narrow margin, within 10% of the
pass standard
Z Failed by consideration margin, more than 10%
below the pass standard
TBE Overview (General Information)
Examination
Type
Duration Basic
Takaful
Medical and
Health
Takaful
General
Takaful
Family
Takaful
Investment
Linked
Takaful
Total
Part A and B 2 Hours 25 25 50 - - 100
Part A and C 2 Hours 25 25 - 25 25 100
Part B only 1 ½ Hours - - 50 - - 50
Part C only 1 ½ Hours - - - 25 25 50
The examination is offered in the following structure:
Examination Type Exam Fee (Inclusive of E- Book and Certificate)
Part A and B RM80.00
Part A and C RM80.00
Part B only RM75.00
Part C only RM75.00
Fee:
Contents
1. Introduction to Shariah
and Muamalat
2. Concept of Risk
3. Introduction to Takaful
4. Comparison Between
Takaful and Insurance
5. Principles and Business
Models of Takaful
6. Development and
Supervision of Takaful
Industry in Malaysia
7. Takaful Intermediaries
8. Introduction to Medical
and Health Takaful
9. Medical and Health
Takaful Types of Plan
10. Medical and Health
Takaful Underwriting
11. Medical and Health
Takaful Certificate
Administration
12. Medical and Health
Takaful Claims
1. Introduction to General
Takaful
2. General Takaful Classes -
Motor Takaful
3. General Takaful Classes
– Fire Takaful
4. General Takaful Classes
– Marine and Aviation
Takaful
5. General Takaful Classes
– Engineering Takaful
6. General Takaful Classes-
Miscellaneous Takaful
7. Genera Takaful Practices-
Risk Assessnet and
Underwriting
8. General Takaful
Practices- Documentation
in General Takaful
9. General Takaful Practices
- Claims
10. General Takaful Practices
– Ethics and Code of
Conduct
1. Assessments
Knowledge
Application
1. Family Takaful Preliminaries
2. Family Takaful Plans
3. Family Takaful Practices:
Certificate Administration
4. Family Takaful Practices:
Underwriting
5. Family Takaful Practices:
Claims and Partial Withdrawal
6. Key Consideration in
Investment
7. Choice of Investment Vehicles
8. Introduction to Investment-
Linked Takaful
9. Structure of Investment-Linked
Takaful
10. How Investment-Linked Takaful
Plan Work?
11. Taxation and Law Covering
Investment-Linked Takaful Plan
12. Identifying and Establishing
Customer Needs
13. Family Takaful Practices:
Marketing and Services, Ethics
and Code of Conduct
Basic Takaful and
Medical & Health
Takaful (Part A)
General Takaful
(Part B)
Family and
Investment-Linked
Takaful (Part C)
Part A-Basic Takaful and Medical & Health Takaful
12 TopicsNo Topics
1 Introduction to Shariah and Muamalat
2 Concept of Risk
3 Introduction to Takaful
4 Comparison Between Takaful and
Insurance
5 Principles and Business Models of Takaful
6 Development and Supervision of Takaful
Industry in Malaysia
7 Takaful Intermediaries
8 Introduction to Medical and Health Takaful
9 Medical and Health Takaful Types of Plan
10 Medical and Health Takaful Underwriting
11 Medical and Health Takaful Certificate
Administration
12 Medical and Health Takaful Claims
12 TopicsNo Topics
1 Introduction to Shariah and Muamalat
2 Concept of Risk
3 Introduction to Takaful
4 Comparison Between Takaful and
Insurance
5 Principles and Business Models of Takaful
6 Development and Supervision of Takaful
Industry in Malaysia
7 Takaful Intermediaries
8 Introduction to Medical and Health Takaful
9 Medical and Health Takaful Types of Plan
10 Medical and Health Takaful Underwriting
11 Medical and Health Takaful Certificate
Administration
12 Medical and Health Takaful Claims
Part A-Basic Takaful and Medical & Health Takaful
The Arabic word 'Islam' simply means 'submission', and derives from the
word meaning 'peace'.
In a religious context it means complete submission to the will of Allah s.w.t.
Islam to the Muslims is not just a religion but a way of life (addin).
• Introduction to Islamic Muamalat
Introduction to Shariah and Muamalat
The Main Components of Islam
Introduction to Shariah and Muamalat
ISLAM
AQIDAH
(a set of beliefs)
SHARIAH
(a set of laws)
Fiqh
IBADAT
Fiqh
MUAMALAT
Islamic Finance
Fiqh
MUNAKAHAT
Fiqh
JINAYAT
AKHLAQ
(a code of morality)
Broken down to its bare elements, Islam comprises of Aqidah (a set of beliefs), Shariah
(a set of laws) and Akhlak (a code of morality)
The Concept of Shariah
Introduction to Shariah and Muamalat
The concept of the Sharī’ah governs the conduct of life in order to realize the
Divine will.and covers all behaviour ( spiritual, mental and physical).
Sharī’ah principles covers the total way of life that includes faith, practices,
personal behavior, legal and social transaction.
‘Aqīdah ‘ It refers to a firm belief (faith) in the fundamentals of centered on the pillars of Imān (
the Oneness of Allāh SWT, His Angels, His Messengers, His Books, Hereafter and
His Divine decree)
Akhlāq It consists of relationship between man and Allāh SWT, man and man and man and
other creatures (practice of virtue, morality, and manners in Islamic theology and
philosophy).
Sharī’ah Sharī’ah is the set of rules derived from both the Qur’ān and the authentic traditions
(sunnah) of the Prophet Muhammad SAW and the scholarly opinions (Ijtihād) based
on Qur’ān and Sunnah.
The Sharī’ah contains categories and subjects of Islamic law called the branches of
fiqh (Islamic jurisprudence
Fiqh ‘Ibādat Rulings that govern the relationship between man and Allāh SWT (includes praying
(ṣalāh), fasting (ṣaum), almsgiving/tithe (zakāh), and performing pilgrimage (ḥajj)).
Description of the Components of Islam
Introduction to Shariah and Muamalat
Description of the Components of Islam
Introduction to Shariah and Muamalat
Fiqh Munākahāt The rulings related to family law. This area deals with marriage,
divorce, inheritance, guardianship and other related matters
Fiqh Jināyat The rulings related to criminal law. This area deals with major
offences like unlawful sexual intercourse (zina), theft (sarīqah),
murder (qatl), etc.
Fiqh Mu‘āmalāt The rulings governing commercial transactions between the
parties involved in the transaction.
The Objectives of Shariah (Maqasid al Shariah)
Introduction to Shariah and Muamalat
The objective of the Sharī’ah is to promote the well-being of all
mankind, which is safeguarding faith (ad-dīn), life (nafs), intellect (‘aql),
lineage (nasl) and their wealth (māl). Whatever ensures the safeguard
of these five principles serves public interest and is therefore desirable.
Imam al-Ghazali
FAITH
LIFE
LINEAGEINTELLECT
WEALTH
5 Objectives of Shariah
Introduction to Shariah and Muamalat
FAITH The preservation and protection of faith or religion (ad-dīn)
under all circumstances.
LIFE The preservation and protection of life under all circumstances
LINEAGE The preservation and protection of descendants and honor
under all circumstances.
INTELLECT The preservation and protection of intellect and mind under all
circumstances (safeguarding it from anything that might harm
the ability and functions of the brain)
WEALTH The preservation and protection of wealth i.e. property, non-
property, cash, stock etc. under all circumstances.
5 Objectives of Shariah
Introduction to Shariah and Muamalat
1. Qur’ān Qur’ān literally means ‘reading’ or ‘recitation’ derived from
the root word qara’a with the literal meaning ‘to read’.
it is defined as the words of Allāh SWT that are revealed to
Prophet Muhammad SAW
2. Sunnah Sunnah means habitual or customary practice, whether this
practice is good or bad.
In the terminology of Uṣūl al-Fiqh (principles of
jurisprudence), Sunnah denotes a saying (qawl), action (fi’l)
or tacit approval (taqrîr) related from the Prophet SAW or
issuing from him other than the Qur’ān.
4 Sources of Shariah
Introduction to Shariah and Muamalat
• Refers to the words of Prophet SAW or the
messages he conveyed verbally
Sunnah by Words
(Sunnah Qawliyyah)
• Refers to the conducts of the Prophet
SAW from which legal rulings are derived
or have been relied upon.
Sunnah by Action
(Sunnah Fi’liyyah)
• Refers to the sanction of Prophet SAW (or
he did not prohibit as the case may be) on
the saying or actions of his companion(s).
Sunnah by Agreement
(Sunnah Taqrīriyyah
3 Categories of Sunnah
Introduction to Shariah and Muamalat
3.Ijmā’ Source of Islamic law which connotes the rulings derived from
divine revelation through the process of human reasoning and
has a binding effect on all Muslims.
It is an agreement of the mujtahidūn (jurists) from among the
community of Prophet Muhammad SAW after his death
4. Qiyās
(Analogy)Literally means measuring or ascertaining the length, weight, or
quality of something, by using something else.
Technically Qiyās is the extension of Sharī’ah rulings from an
original case (aṣl) to a new case, because the latter has the same
effective cause as the former.
4 Sources of Shariah (Continued)
Introduction to Shariah and Muamalat
The term “Muamalat” means the transactions, that is, any form of mutual dealings held between men to solve their everyday needs, especially in matters relating to trade and commerce.
Mu’amalat is a social relationship which consists of various economic and non-economic activities.
Basic Principles of Muamalat
Basic Principles of Muamalat
Freedom of
contract
Muslims are free to put conditions in their agreements except that which
prohibits something which is permissible or permits something which is
prohibited.
Permissibility as
original status of
matters
The status of all matters other than rituals is permissible until
evidence is given that a certain matter is prohibited.
Custom is of force In many Shariah commercial contracts, many things become permissible
following customs
Introduction to Shariah and Muamalat
Basic
PrinciplesDescriptions
Permissibility as a
General Rule
The status of all matters other than rituals is permissible
until evidence is given that a certain matter is prohibited
Conclusion of Contract
by Mutual Consent
Means the contract entered into by the parties shall be free
from any elements of coercion, fraud, misrepresentation or
other illegal means.
Conformity of Contract
with the Maqāṣid al
Sharī’ah
The transaction or contract entered by individuals shall be
in accordance with the Maqāṣid al Sharī’ah.
The Principle of Wide
Circulation of Wealth
Wealth and property should be circulated among the
general public and actively transferred from one hand to
another in the form of expenditures and investment
Basic Principles in forming Shariah Rulings
Introduction to Shariah and Muamalat
Basic Principles Descriptions
The Principle of
Transparency in
Commercial Dealing
All financial transactions must be conducted in a manner
that all parties are clear about the important facts including
the terms and conditions of their dealings
Justice and Fair Dealing Justice is the general principle of Sharī’ah that needs to be
observed in all Islamic transactions and contract
Custom is of Force In many Sharī’ah commercial contracts, many things
become permissible following the customs (Example:
acceptance of delay of two business day (t+2) as spot
transaction in currency exchange).
Freedom of Contract All individuals are free to put conditions in their agreements
except that it prohibits something that is permissible or
permits something that is prohibited
Basic Principles in forming Shariah Rulings
Introduction to Shariah and Muamalat
All economic activities are legally permissible as long as these
activities do not transgress the tenets of Shari’ah.
It is the unanimous opinion of all four major Islamic School of
Thought (Ḥanafī, Mālikī, Shāfi’ī and Ḥanbalī) that all forms of
business transactions that transgress any of the tenets of
Shari’ah are considered invalid.
• General Prohibition in Muamalat
Introduction to Shariah and Muamalat
• General Prohibitions in Muamalat
Maysir(Gambling)
Gharār(Uncertainty) Usury (Ribā)
Introduction to Shariah and Muamalat
Ribā in Arabic literally means an increase, expansion or growth
In Islamic jurisprudence it refers to unjustified increase in the eye
of Sharī’ah (but not every increase).
Ribā refers to any benefits arising out of a loan contract or
transaction that involves usurious (ribawi) items.
• Riba (Usury)
Introduction to Shariah and Muamalat
• Types of Riba
Debt-Based Ribā
(Ribā Duyūn)
Sale-Based Ribā
(Ribā Buyū’)
Ribā Nasī’ah
Ribā Fadhl
Ribā Qard
Ribā Jāhiliyyah
Exchange of
ribawi items of
different
measurements Payment of
ribawi items not
traded
immediately
Imposed form the
beginning
No ribā in the
beginning ,
Imposed after default
Introduction to Shariah and Muamalat
Occurs in trading and exchange transactions, in which unequal exchange of
Ribāwi items of same kind and same basis.
TYPE DESCRIPTION
Ribā Fadhl Due to unequal amount/quantity
Ribā Nasī’ah Due to deferment in time of counter
values (ribawi item) that belong to: 1.
The same basis/genus (jins) and same
kind (nau’) Example: gold and gold; or
2. The same basis/genus (jins) and
different kind (nau’) Example: gold and
silver
• Sale-Based Riba (Riba Buyu)
Introduction to Shariah and Muamalat
The following rules of exchange apply in deciding whether the said transactions fall
under Riba Fadhl or Nasi’ah.
RULE 1 RULE 2
Exchange between Ribāwi items of the same
kind must be made with equal weight,
measurement or number and payment delivery
must be made at the same time
Riba Fadhl: If payment and delivery are
made at the same time but the weights,
measurements or numbers of the materials
exchanged are not equal.
Riba Nasiah : If payment and delivery are
not made at the same time but
the weights, measurements or numbers
of the materials exchanged are equal
Payment and delivery between Ribāwi
materials of different kinds must be made at
the same time, though they may be made at
different prices.
If payment and delivery are not made at
the same time (on spot), then Riba Nasiah
occurs
• Sale-Based Riba (Riba Buyu)
Introduction to Shariah and Muamalat
Unjustified increment in money lent whether in kind or cash over and above the principal
amount.
TYPE DESCRIPTION
Ribā Qard Refers to any benefit imposed upfront in lending
money regardless whether the borrower will
default in the future or not.
Ribā Jāhiliyyah An additional benefit imposed on the borrower
attributed to borrower default in repaying the
sum borrowed within the stipulated time.
• Debt-based Riba (Riba Duyun)
Introduction to Shariah and Muamalat
It is a situation where the quantity and the quality involved in thetransaction is not known and predetermined.
Gharar makes a transaction un-Islamic as the element ofuncertainty in a transaction may result into an unjust or unfairoutcome for the parties involved
Gharar (Uncertainty)
Introduction to Shariah and Muamalat
• A contract is presumed to suffer from gharār when:
• The parties are unaware whether such an event will take place or not.
• The subject matter is not within the knowledge of the parties.
• There is no certainty over the existence of the subject matter.
• Its acquisition is in doubt.
• Its quantum is unknown.
Gharar (uncertainty)
Introduction to Shariah and Muamalat
• Gharar can be divided into Minor Gharar and Major Gharar.
• Types of Gharar
Major Gharar (Fahish) causes a
contract to be invalid.
In general terms, major Gharar is:
an uncertainty which is so great
that it becomes unacceptable; or
It is so vague that there is no
means of quantifying it.
Minor Gharar (Yaseer) is forgiven
as it does not render a sale contract
defective.
Such contracts are therefore
permissible and valid
Introduction to Shariah and Muamalat
Both parties to the insurance contract do not know exactly what their
obligations and responsibilities are to each other ( neither the insurer nor
the insured knows the outcome of the contract)
In general insurance, the insured does not know the amount of
compensation he is likely to get in case of an accident or a peril
The insurer does not know when the peril will occur.
The Element of Gharar in Insurance
Introduction to Shariah and Muamalat
There is no equity in insurance - the insured has got to pay the premium,
but if the peril insured against does not happen, the insured is not paid
anything at all.
Insurance is an obligation on the part of the insurance company to pay
compensation which is sometimes fulfilled and sometimes not.
Uncertainty in the results of the exchange as at the point the contract is
made, the result of the exchange is still uncertain.
The Element of Gharar in Insurance
Introduction to Shariah and Muamalat
Maisir can be concluded as betting or charging something that will be forfeited
if one fails to obtain the greater gain that one hopes for (such as games of
chance – lottery, sweepstakes et.c)
Maysir (gambling)
Maysir elements in Insurance
The insured could receive huge amount of money, without equivalent input
There is the possibility of paying premium without getting any amount in return.
The insurer loses if there are too many claimants.
When the premium collected exceeds the claims, the insurers could make huge profits.
Introduction to Shariah and Muamalat
The literal meaning of ‘aqad’ is to ‘join’ or ‘tie’ and can be
translated as ‘contract’.
• The Concept of Contract in Muamalat
“Legal relationship created by the conjunction of two declarations,
from which flow legal consequences with regard to the subject
matter”.
DEFINITION
Introduction to Shariah and Muamalat
Aqad (Contract)
Essential elements of ‘Aqad
‘Aqidian
(Contracting parties) Sighah
(Offer & Acceptane)
Ma’aqūd ‘Alaih
(Subject Matter)
1. Ijab (offer) refers to
statement from someone (the
first party) to offer something.
2. Qabul(acceptance) refers
to statement from someone
(the second party) to receive
offer from the first party
It is a condition of a valid
contract that the parties
possess capacity. Capacity is
a quality which makes a
person qualified for acquiring
rights and undertaking duties
and responsibilities.
Subject matter refers to the
goods/ services and price/
consideration in a contract.
Introduction to Shariah and Muamalat
Part A-Basic Takaful and Medical &
Health Takaful
12 TopicsNo Topics
1 Introduction to Shariah and Muamalat
2 Concept of Risk
3 Introduction to Takaful
4 Comparison Between Takaful and
Insurance
5 Principles and Business Models of Takaful
6 Development and Supervision of Takaful
Industry in Malaysia
7 Takaful Intermediaries
8 Introduction to Medical and Health Takaful
9 Medical and Health Takaful Types of Plan
10 Medical and Health Takaful Underwriting
11 Medical and Health Takaful Certificate
Administration
12 Medical and Health Takaful Claims
Risk is a state of uncertainty which may result in the possibility of loss
or other undesirable outcome.
“Risk” refers to the likelihood of an event happening and the severity of
the negative consequences, which entail the possibility of a financial
loss. Financial loss may be defined as a decline in or disappearance of
value due to a contingency
According to ISO 31000 (2009) / ISO Guide 73:2002 risk is defined as
the 'effect of uncertainty on objectives'.
Definition
Concept of Risk
Concept of Uncertainty
Uncertainty is the “the lack of complete certainty due to the existence of
more than one possibility where the “true” outcome/state/result/value is not
known”.
Generally, uncertainty may refer to the following:
1. Predictions of some future events;
2. Margin of error in physical measurements made; or
3. Some unknowns due to limited or lack of knowledge on some obtainable
facts.
Concept of Risk
Risk entails the possibility of a financial loss
Financial loss may be defined as a decline in or
disappearance of value due to a contingency.
Concept of Risk
The probability of the
risk occurring
loss frequency loss severity
Two factors in evaluating a
risk
The consequences of
the occurrence
Note: There is a high frequency of low severity incidents and a low frequency of high
severity incidents
Risk Evaluation
Concept of Risk
PURE RISK
Loss
No Loss
Speculative Risk
Loss
No Loss
Profit
CAN BE
INSURED CANNOT BE
INSURED
THE LAW OF
LARGE
NUMBERS CAN
BE APPLIED TO
PURE RISK
Characteristics of Pure and Speculative Risks
Classification of Risk
Concept of Risk
RISKS DEFINED:
A. Fundamental Risk
Risk that will affect the whole society or a large
number of people within the community. It is not
within the control of individuals.
Examples include earthquakes, war etcs.
Fundamental and Particular Risks
Classification of Risk
Concept of Risk
B. Particular Risks
It affect only individuals and is within the control of
individuals.
Damage to property due to accidents, thefts and
robbery.
Fundamental and Particular Risks
Classification of Risk
Concept of Risk
PURE RISK CAN BE CATEGORIZED INTO THREE (3) TYPES
NAMELY:
A. PERSONAL RISKS; RISKS THAT DIRECTLY AFFECT INDIVIDUALS:
RISK OF PREMATURE DEATH
RISK OF INSUFFICIENT INCOME DURING RETIREMENT
RISK OF POOR HEALTH
RISK OF UNEMPLOYMENT
Classification of Pure Risks
Classification of Risks
Concept of Risk
B. PROPERTY RISKS : possibility of loss due to damage to property
from various causes or perils. 2 types of risks :
Direct Loss
Financial loss that results from the physical damage, destruction or theft
of the property.
Indirect Loss or Consequential Loss
Financial loss that results indirectly from the occurrence of a direct
physical damage or theft of the property (e.g. in addition to the physical
damage to the factory, the owner would lose his income (consequential
loss))
Classification of Pure Risks
Classification of Risk
Concept of Risk
C. LIABILITY RISKS :
Refers to damages to a property or bodily injury of a third party.
In this case the court may order the person who created the accident to
pay substantial damages to the person injured.
Classification of Pure Risks
Classification of Risks
Concept of Risk
Pecuniary Value :
The risk must involve a loss that is capable of financial
measurement
Homogeneous Exposure :
There must be a large number of similar, homogeneous risks
before anyone of that number is capable of being insured.
Pure Risks :
The possibility that can result only in a loss or no loss
Characteristics of Takaful Risk
Concept of Risk
Particular Risk :
The risk that will affect only individuals and is within
the control of individuals
Fortuitous:
The frequency and severity of any risks must be
completely beyond the control of person covered or is
unforeseen
Characteristics of Takaful Risks
Concept of Risk
Perils and Hazards
FACTORS THAT CAN CAUSE OR CONTRIBUTE TOWARDS
THE OCCURRENCE OF LOSS
Sources of Risks
Concept of Risk
Perils The immediate cause of loss
Natural Perils
• Perils caused by natural elements such as rain, snow, typhoon, hurricane etc.
Man-Made Perils
• Include causes of loss that lie within the individuals’ control, including suicide, terrorism, war etc.
Economic Perils
• Economic in nature, such as recession, inflation, instability of industrial firms etc.
categorized as follows
Perils
Concept of Risk
The underlying factors, which increase the probability of
occurrence of loss.
Physical Hazard
• Physical condition of the subject matter that increases the chance of loss.
Moral Hazard
• The attitude of an individual that increases the chance of loss.
Morale Hazard
• A lack of concern about the outcome of his actions due to the existence of Takaful.
categorized as follows
Hazard
Concept of Risk
Risk Identification
Risk Evaluation
Develop Risk Management
Plan
Implementation of Risk
Management Plan
Review and Monitoring of
Risk Management
Plan
• Risk Management
Concept of Risk
Risk identification refers to the process of identifying,
analyzing, reviewing and anticipating possible risks.
The objectives of risk identification are to identify and
categorize risks that could affect the project and to
document these risks.
The outcome of risk identification is a list of risks.
RISK IDENTIFICATION
• Risk Management Process
Concept of Risk
Risk Evaluation
Risk evaluation is the
process of determining
the risk’s impact or
potential losses
Risk Frequency refers
to the number of times
a loss producing event
will occur during given
time period (probability
of its occurrence).
Risk Severity refers to
the cost or amount of
loss, in money terms,
arising from a loss
producing event.
to evaluate or
determine the impact
of the risk
Risk Management Process
Concept of Risk
RISK MANAGEMENT PLAN
Once the risks have been evaluated completely, then
select the appropriate risk control measure .
Selection must consider cost and effectiveness
Risk Management Process
Concept of Risk
Risk Transfer Risk Avoidance
4 Methods
Risk RetentionLoss Control
4 Methods of Handling Risks
Concept of Risk
seeks to eliminate or prevent the risk
through discontinuation of activities or
businesses that presents such a risk
EXAMPLES
avoid smoking to cut the risk of cancer
keeping dangerous materials apart to
prevent a fire or an explosion
Not taking a risk at all
Risk Avoidance
4 Methods of Handling Risks
Concept of Risk
Involves methods that reduce:
likelihood of the loss from occurring : number
of times a loss producing event will occur over a given
period of time
severity of loss : the cost or amount of loss, in
money terms, arising from the loss
technique to improve the risk to achieve an acceptable
and fair standard.
Risk Control
4 Methods of Handling Risks
Concept of Risk
Risk retention is a viable strategy for small risks
where the cost of covering the risk would be greater
over time than the total losses sustained.
Bearing the risk personally
Risk Retention
4 Methods of Handling Risks
Concept of Risk
Losses will be paid by the
organization or individual to
whom the risk is transferred
Transferring a risk to others
Risk Transfer
4 Methods of Handling Risks
Concept of Risk
This practice is called Takaful or
mutual protection
Sharing risks with others who have similar nature of risk
Risk Sharing
4 Methods of Handling Risks
Concept of Risk
Implementing the risk management program
Once the selection of a suitable method is made, the plan is
ready for implementation.
In performing this step, the risk should be prioritized and
matched with the actions to be taken.
Risk Management Process
Concept of Risk
Reviewing and Monitoring of Risk Management Plan
These activities involve periodical reviews, monitoring the
implementation process, progressive revision of the plan due to
any changes in the business and economic environment.
Periodical reviews can help to identify any deficiencies or
adjustments and also ensure the objectives of the plan are met.
Reviews should be done at least once a year.
Risk Management Process
Concept of Risk
Communication of Risk Management Objectives and
Plan
Pg 2/5
• Proper communication at all phases of the risk management
planning is needed to achieve the objectives of the plan.
. The drivers of risk management need to include both internal
as well as external sources.
Risk Management Process
Concept of Risk
Islām recognizes humans face risk in every aspect
of life. Humans will be continuously tested with
misfortune and catastrophes such as premature
death, disabilities, accidents and others
Concept of Risks in Islam
Concept of Risk
• Takaful provides a way to manage risks according to Sharī‘ah
principles.
• The Takaful is a mutual contract of co-operation between participants
for mutual protection from unexpected future material risk.
• Participants mutually agree to assist each other financially in case of
certain defined needs (defined in the Takaful contract) by contributing
to a common Takaful fund.
• The participants mutually agree to provide compensation
• in the event of a misfortune.
Takaful as a Risk Management Tool
Concept of Risk
72
Part A-Basic Takaful and Medical &
Health Takaful
12 TopicsNo Topics
1 Introduction to Shariah and Muamalat
2 Concept of Risk
3 Introduction to Takaful
4 Comparison Between Takaful and
Insurance
5 Principles and Business Models of Takaful
6 Development and Supervision of Takaful
Industry in Malaysia
7 Takaful Intermediaries
8 Introduction to Medical and Health Takaful
9 Medical and Health Takaful Types of Plan
10 Medical and Health Takaful Underwriting
11 Medical and Health Takaful Certificate
Administration
12 Medical and Health Takaful Claims
The word “Takaful” is derived from the Arabic verb “Kafālah” which
simply means to jointly guarantee.
Two or parties agreeing to jointly guarantee one another in the
event of a loss, as a consequent of being afflicted by a calamity
defines the term “Takaful”.
Takaful
Introduction to Takaful
“An arrangement based on mutual assistance under which
Takaful participants agree to contribute to a common fund
providing for mutual financial benefits payable to the Takaful
participants or their beneficiaries on the occurrence of pre-
agreed events”.
(Islamic Financial Services Act 2013)
Definition
Introduction to Takaful
Under this system, if any member of a tribe was killed by a member
of another tribe, the close relatives of the killer known as ‘Aqilah’ or
‘Ma’aqil’ are required to pay an amount of “blood money” as
compensation to the heir of the victim.
The payment of the “blood money” seemed to be a kind of financial
protection for the heir of the deceased against the unexpected
death of the victim.
This practice was introduced to replace the previous “blood for
blood” system.
Development of Takaful
1. Practice of Al-Aqilah
Introduction to Takaful
In the Constitution of Madinah (Mithaq al-Madina), Prophet
Muhammad SAW had legislated the Takaful scheme by endorsing
the practice of:
• Development of Takaful
2. Practice of Prophet Muhammad SAW
Diyat(Blood Money)
Fidyah (Ransom)
Alms and Charity
Introduction to Takaful
The second Caliph of Islām, Saidina Umar al-Khattab r.a. further developed the
Aqilah system. The Diwan of Mujahidin was established for the purpose of
extending mutual cooperation to contribute diyat money among tribesmen for
murder committed by another of the same tribe.
• Development of Takaful
3. Practice of the Companions
Introduction to Takaful
Takaful Philosophy and Concept
Takaful
Solidarity of
Society
Brotherhood
Mutual
Responsibility
Introduction to Takaful
TAKAFUL IS A PROTECTION SCHEME
Takaful Philosophy and Concept
A group of participants mutually agree among themselves by
contributing as tabarru’ or donation in the Takaful funds
This guarantees each other against a defined loss or damage that may
befall upon any of them.
It emphasises unity and cooperation among participants.
CONCEPT OF TABARRU’ ELIMINATES THE ELEMENT OF UNCERTAINTY IN THE TAKAFUL CONTRACT
Introduction to Takaful
Benefits of Takaful
It allows the participant to fulfill socialobligations towards community and family
Financial assistance for the unfortunate and needy through the concept of tabarru’
Promotes moral values and ethical dealings in business free from elements of Ribā, Gharār and Maysir
Provides protection and security for the family and the group against any misfortune.
Zakāh (tithe) and corporate tax from Takaful operators is used for community development and nation building.
Introduction to Takaful
Types of Nominations
DEFINITION
Nomination in Takaful is the act of naming a person to receive
certificate proceeds payable in the event of the death of the certificate
owner.
Introduction to Takaful
Takaful Nomination
The nominee shall receive the Takaful benefits payable
(stated in the nomination form)
as an executor (wasi)as a beneficiary under a conditional
hibah
the beneficiary shall be entitled to
the benefits fully according to the
share/percentage stated in the
nomination form
acts as an administrator for the
certificate proceeds and shall
distribute the proceeds to the rightful
heirs in accordance with Faraid
(while for non-Muslim participants,
the distribution is in accordance with
the Distribution Act)
Introduction to Takaful
Takaful Nomination
Section 142 of Islamic Financial Services Act (IFSA)
2013
Schedule 10 sets out provisions for the payment of Takaful
benefits upon death of a Takaful participant under a Family
Takaful certificate, and a Personal Accident Takaful certificate,
issued in respect of a contract of Takaful entered into by the
Takaful participant upon his life.
Introduction to Takaful
Part A-Basic Takaful and Medical &
Health Takaful
12 TopicsNo Topics
1 Introduction to Shariah and Muamalat
2 Concept of Risk
3 Introduction to Takaful
4 Comparison Between Takaful and
Insurance
5 Principles and Business Models of Takaful
6 Development and Supervision of Takaful
Industry in Malaysia
7 Takaful Intermediaries
8 Introduction to Medical and Health Takaful
9 Medical and Health Takaful Types of Plan
10 Medical and Health Takaful Underwriting
11 Medical and Health Takaful Certificate
Administration
12 Medical and Health Takaful Claims
Historians trace the origin of insurance to 215 CE, when the Roman
government was required by military supplies to accept all risks arising
from enemy attacks, storms, and other natural disaster for supplies
carried on their ships. (Omar Fisher, 2009).
The earliest evidence of insurance contracts dates to the period around
2,800 B.C. where the Babylonian legal code showed regulations on
insurance dealing with perils faced by merchants and traders at sea.
Introduction
Comparison between Takaful and Insurance
Modern insurance began in the 1600’s, when British merchants and ship owners
made mutual agreements to share in the profits and losses of sea voyages
The first case of life insurance dates back to 1583 in England where a term
contract was issued on the life of a certain William Gybbon.
A significant development in the life insurance industry was the development of
the mortality table by Edmund Halley in 1693.
Insurance in Malaysia dates back to the 18th and 19th centuries where trading
firms and agency houses acted as agents for insurance companies from the
United Kingdom.
Introduction
Comparison between Takaful and Insurance
Insurance can be define as a contract whereby one person called
the insurer, undertakes in return for the agreed consideration,
called the premium to pay to another person, called the insured, a
sum of money (sum assured), on the happening of a specific event
during a specific period (term of the policy).
Definition of Insurance
Comparison between Takaful and Insurance
Insurance is a process through which losses suffered by a few is
spread to and borne by many
A group of people exposed to similar risk come together and make
contributions (premiums) towards formation of a pool of funds.
A person who suffers a loss is compensated out of the same pool of
funds.
It transfers the financial burden of a misfortune from the Insured to
Insurer.
Basis of Insurance
Comparison between Takaful and Insurance
A contract of insurance is a contract of and this principle is to put the
Insured in the same financial position as he was in before the
misfortune occurs.
It is a contract of indemnity (excluding Life and Personal Accident
Insurance)
The sum insured is fixed to provide compensation at the time of loss, (
in real property, depreciation must always be taken into account).
The cost of insurance would depend on the scope of cover as
additional cover requires additional premium.
Basis of Insurance
Comparison between Takaful and Insurance
Only unforeseen and fortuitous losses are
insurable.
Therefore, foreseeable misfortune or
losses are generally not insurable (except
in Life Insurance)
Basis of Insurance
Comparison between Takaful and Insurance
In modern practice, insurance is a medium through which the financial burden of a misfortune is transferred from the Insured to Insurer.
The concept behind insurance is that a group of people exposed to similar risk come together
and make contributions (premiums) towards formation of a pool of funds.
In case a person actually suffers a loss on account of such risk, he is compensated out of the same pool of funds.
Basis of Insurance (summary)
Comparison between Takaful and Insurance
Financial Services Act 2013
Types of Insurance
Life business
• Covers life policies and includes any type of insurance business carried on as incidental only to the life insurer’s business;
General business
• All insurance business which is not life business.
all insurance business
is divided into
Comparison between Takaful and Insurance
The National Fatwa Committee:
“that Life Insurance provided by present-day insurance companies is a business
transaction which is voidable because it contradicts the Islamic business principles in
view that the contract contains the elements of gharar, maysir and riba”.
The Islamic Fiqh Academy, OIC:
“The Commercial Insurance Contract, with a fixed periodical premium, which is
• Fatwas on Prohibition of Insurance
‘Ijtihād’ is used to determine if insurance is permissible (halal) or otherwise (haram)
Comparison between Takaful and Insurance
Takaful Basic Examination
TERM INSURANCE TAKAFUL
ESSENCE OF
INTENTION
Intention is to create legal
relation only
Intention is to create both
spiritual and legal relationship
SUBJECT MATTER Subject matter must be
Common Law justified
Subject matter must be Shari‟ah
Justified.
GUARANTEE The company provides the
guarantee.
The Takaful Operator is only the
Fund Manager. The Participant
mutually guarantees each other.
FUND The fund belongs to the
Company though separation of
assets is maintained between
the Shareholders and the policy
holders.
The fund belongs to the
Participant and managed by the
Takaful Operator for a legitimate
consideration for the services
rendered.
Comparison between Takaful and Insurance
TERM INSURANCE TAKAFUL
PAYMENT OF
CONTRIBUTION/PREMI
UM
Paid premium creates an
obligation against the Insurer
on a sale and purchase
contract.
Paid contribution (portion for
Takaful charges are treated as
donation (Tabarru’).
FORBIDDEN
ELEMENTS
Insurance policy revolves
around the element of Gharar,
Riba and Maysir.
Islamic model is based on
Islamic principles and free from
any of the forbidden elements.
PROFITS In insurance the profit is at the
discretion of the Company
The profit is shared between the
Participant and the Company.
CONTRACT An exchange contract (sale
and purchase) between the
Insurer and the Insured.
A contract of tabarru’ (donation)
and agency (Wakālah) or profit
sharing (Muḍārabah)
RISKS TREATMENT Concept of risks transferred
from insured to insurance
company
Risks sharing concept among
participants
Comparison between Takaful and Insurance
TERM INSURANCE TAKAFUL
BENEFITS Paid from the fund legally
owned by the company.
Paid from the defined funds
under joint indemnity borne by
the participants.
PROFITS / BONUS May offer bonus or profit in
general terms only especially
with profit participating policies
Specifies from the outset how
the profits are to be shared
between the participant and the
company
INVESTMENT OF
FUND
There is no restriction apart
from those imposed for
prudential reasons.
Assets of the Takaful funds are
invested in Shari‟ah-compliant
instruments.
Comparison between Takaful and Insurance
Part A-Basic Takaful and Medical &
Health Takaful
12 TopicsNo Topics
1 Introduction to Shariah and Muamalat
2 Concept of Risk
3 Introduction to Takaful
4 Comparison Between Takaful and
Insurance
5 Principles and Business Models of Takaful
6 Development and Supervision of Takaful
Industry in Malaysia
7 Takaful Intermediaries
8 Introduction to Medical and Health Takaful
9 Medical and Health Takaful Types of Plan
10 Medical and Health Takaful Underwriting
11 Medical and Health Takaful Certificate
Administration
12 Medical and Health Takaful Claims
Based on the established Islamic legal maxims on the concept of al-Asl fi al-Ashya’ al-Ibahah, (the original position of things is permissible -presumption of permission in what is not forbidden” )
Takaful contract assimilates the normal conventional insurance principles in its practices and is generally subject to contract law.
These principles however must not contravene the Shari’ah.
Principles and Business Models of Takaful
BASIC PRINCIPLES OF
TAKAFUL CONTRACT
Permissible Takaful
Interest (PTI)
Duty of Utmost Good
Faith
Indemnity
Subrogation
Contribution
Proximate Cause
Principles and Business Models of Takaful
The term “Permissible Takaful Interest” refers to the benefit (orinterest) a person has in an insured object or person.
A person has permissible interest in a thing when he or she wouldexperience some kind of loss (financial or otherwise) if the thingwere to be damaged or lost.
Basic Principles of Takaful Contract
Permissible Takaful Interest
(PTI)
Principles and Business Models of Takaful
Permissible Takaful Interest exists when there is a relationship
between participants and the subject matter
Basic Principles of Takaful Contract
Permissible Takaful Interest
(PTI)
normally arising from the following situations
• Property owners will lose financially if their properties are damaged or destroyedOwnership of Property
• there is a potential financial loss arising from legal liability.
Potential Legal Liability
• if there is a provision in the contract that one party is financially responsible for any loss or damage to the property and third-party liabili
Contractual Right
Principles and Business Models of Takaful
Permissible Takaful Interest
(PTI)
When a certificate covers someone else (other than
participant). The participant and person covered shall have a
PTI at the point of inception and benefits payable.
In the event that the participant does not have any PTI with
the person covered at inception, the contract shall be void.
Basic Principles of Takaful Contract
Principles and Business Models of Takaful
In the event that the participant does not have any PTI with the person covered at
benefits payable, the contract does not void but subjects the Takaful Operator to
the following conditions:
Takaful Operator shall pay to the participant an amount specified by BNM; and
Upon payment of such amount, the contract is deemed by Takaful Operator to be
terminated.
Basic Principles of takaful Contract
Permissible Takaful Interest
(PTI)
Principles and Business Models of Takaful
A person shall be deemed to have PTI in the person covered if the other person is:
Basic Principles of Takaful Contract
Permissible Takaful Interest
(PTI)
Spouse or child
A person on whom he is wholly or partly dependent for
maintenance or education at the time
entered into the contract
His ward under the age of majority at the time
the person entered into the contract of Takaful
An employee
Principles and Business Models of Takaful
The participant shall obtain prior written consent from the
person covered unless he is a minor.
The person covered has the right to revoke his consent
by informing the Takaful Operator in writing.
Subsequently, the PTI is automatically void.
PTI shall not be void due to dissolution of marriage
between the person and his spouse.
Basic principles of Takaful contract
Permissible Takaful
Interest (PTI)
Principles and Business Models of Takaful
A group Takaful certificate shall not be void if the group Takaful
participant does not have PTI in the person covered
The Takaful Operator shall obtain a written declaration from the
participant that he has PTI in the person covered.
The Takaful Operator shall be liable to a person who has paid his
contribution under the group even if participant has no PTI in the person
covered. This will apply even if the Operator is yet to receive the
contribution.
Basic Principles of Takaful Contract
Permissible Takaful
Interest (PTI)
Principles and Business Models of Takaful
This duty refers to the positive duty to voluntarily, accurately and fully disclose all
facts material to the risks being proposed, whether requested or not.
Failure to do so may give the aggrieved party the right to regard the contract as void.
The participants and the Takaful Operator must disclose all the material facts fully and
truthfully
This duty shall continue throughout the period of contract where the participant is
required to inform and disclose to the Takaful Operator of any changes which might
materially increase the risk.
Basic Principles of Takaful Contract
Duty of Utmost Good
Faith
Principles and Business Models of Takaful
This duty refers to the positive duty to voluntarily, accurately and fully
disclose all facts material to the risks being proposed, whether requested or not.
Failure to do so may give the aggrieved party the right to regard the contract as
void.
The participants and the Takaful Operator must disclose all the material facts
fully and truthfully
This duty shall continue throughout the period of contract where the participant
is required to inform and disclose to the Takaful Operator of any changes
which might materially increase the risk.
• Basic Principles of Takaful Contract
Duty of Utmost Good
Faith
Principles and Business Models of Takaful
Breach of Utmost good faith occurs when the participant
Basic Principles of Takaful Contract
Duty of Utmost Good
Faith
Fails to disclose the
material fact
Misrepresents a
material fact
Innocent
misrepresentation
Fraudulent
misrepresentation.
Contract becomes void when there is a breach of utmost good faith
Principles and Business Models of Takaful
ANY FACT that would reasonably INFLUENCE A TAKAFUL OPERATOR’S
UNDERWRITING DECISION on a certificate, i.e. after identifying and
evaluating the hazards associated with the risk, underwriter will decide on
whether to accept, accept with condition, decline or defer the proposal.
Basic Principles of Takaful Contract
Duty of Utmost Good
Faith Material Fact
Principles and Business Models of Takaful
A proposer shall disclose to the licensed Takaful Operator a matter that1. he knows
to be relevant to the decision of the licensed Takaful Operator on whether to accept
the risk or not and the rates and terms to be applied; or 2. a reasonable person in
the circumstances could be expected to know to be relevant.
Basic Principles of Takaful Contract
Duty of Utmost Good Faith
Section 141 (4) of IFSA 2013
he knows to be relevant to the decision of the licensed Takaful Operator on
whether to accept the risk or not and the rates and terms to be applied or
a reasonable person in the circumstances could be expected to know to be
relevant.
Principles and Business Models of Takaful
The duty of disclosure shall not require the disclosure of a matter that 1. he knows to be relevant to
the decision of the licensed Takaful Operator on whether to accept the risk or not and the rates and
terms to be applied; or 2. a reasonable person in the circumstances could be expected to know to be
relevant.
Duty of Utmost Good
Faith
Part 2 Schedule 9 Para 4 of IFSA 2013
is of common knowledge
diminishes the risk to the licensed
Takaful Operator
the licensed Takaful Operator knows or in the ordinary course
of his business ought to know
in respect of which the licensed Takaful Operator has waived any requirement for
disclosure
Principles and Business Models of Takaful
Basic Principles of Takaful Contract
A mechanism used by the Takaful Operator to provide
compensation in an attempt to place the participant in the
same pecuniary position after the loss as enjoyed
immediately before the loss.
Indemnity
Definition
Principles and Business Models of Takaful
Basic Principles of Takaful Contract
One party has the right to "step into the shoes" of another
party for the purpose of bringing a claim for damages.
Basic Principles of Takaful Contract
Definition
Subrogation
Principles and Business Models of Takaful
Subrogation
It ensures that the participant does not profit from his actual loss.
In case the participant had been partly indemnified by a third party, the
Takaful Operator will only pay the balance
If more than what it has paid to the participant has been recovered
from the third party, such excess must be given to the participant.
It is not applicable to Family Takaful and Personal Accident Takaful
as they are not contracts of indemnity.
Basic Principles of Takaful Contract
Principles and Business Models of Takaful
Two or more Takaful Operators liable for a covered loss should
participate in the payment of that loss.
Having paid its share of a loss, a Takaful Operator may be
entitled to equitable contribution - a legal right to recover part of
the payment from another Takaful Operator whose certificate
was also applicable.
Basic Principles of Takaful Contract
Contribution
Principles and Business Models of Takaful
Proximate cause is defined as the active cause that sets inmotion a train of events which brings about a result,without intervention of any force.
A loss may be attributed to more than a single event - theremay be concurrent causes or a chain of causes which mayoccur in sequence or in broken chain
Thus, the cause of a loss must be established becauseonly risks specifically covered can be compensated.
Basic Principles of Takaful Contract
Proximate Cause
Principles and Business Models of Takaful
The principle of guarantee which is the basis of Takaful
Commercial Contracts used in Takaful
“Kafala”
It combines several Shari’ah compliant contracts such as tabarru’
(donation), wakālah (agency) and muḍārabah (profit-sharing). The
combinations may differ according to the business models adopted
by Takaful Operators.
the majority guarantees the loss of the minority by sharing
the burden of loss via the pooling of funds
Takaful
Principles and Business Models of Takaful
the Participant agrees to relinquish all or certain portions of hiscontribution as donation.
The tabarru’ portion is credited into the Participant Risk Fund forthe participant to fulfil his obligation of mutual help and jointguarantee
Tabarru eliminates the element of gharār (uncertainty).
Commercial Contract used in Takaful
An Arabic word that means donations or giftsTabarru
Concept
Principles and Business Models of Takaful
A contract between a capital provider (rabbul māl) and an entrepreneur (muḍārib),under which the capital provider provides capital to be managed by the entrepreneur.
Commercial Contracts used in Takaful
Muḍārabah
Takaful participants enter into a muḍārabah contract with the Takaful
Operators (entrepreneur), who manages the Takaful business. The
participants (capital providers), pay the Takaful contribution.
The contract define the profit of the Takaful business and the ratio to be
shared between the two parties.
Application
Concept
Principles and Business Models of Takaful
An action performed by an agent on behalf of the principal will bedeemed as action by the principal.
In return for his services, an agent gets a certain wage within theincentive structure of the principal.
The Takaful Operator will act as the agent or “wakil” to theparticipant
The Takaful Operator charges a fee for the services rendered.
Commercial Contracts used in Takaful
A contract of agency, which means doing any work or
providing any service on behalf of any other person
Wakālah
Application
Principles and Business Models of Takaful
Types of Takaful Operational Models and its Application
MAIN MODELS
Muḍārabah(profit
sharing)
Wakālah(agency).
Mudarabah+ Wakalah
(hybrid model)
Principles and Business Models of Takaful
Types of Takaful Operational Models and Its Application
Wakālah(agency).
1. The model describes an agency agreement
between the operators (agent or “wakil”) and the
participant as the principal
2. The Operator will perform the following:
Manage the participation of the participants in a
variety of Takaful products
Fund management and
Operations , etc.
Principles and Business Models of Takaful
Wakālah(agency).
The Takaful Operator charges a fee under the
agreement (from the contributions of the participant)
The Takaful Operator will earn its revenue from:
The Wakālah fee, and
Returns on the investment of its shareholders’
fund
Types of Takaful Operational Models and Its Application
Principles and Business Models of Takaful
Wakālah(agency).
PARTICIPANTS
CONTRIBUTION
S
PARTICIPANTS
RISK FUNDS
INVESTMENT
PROFIT
CLAIMS
RETAKAFUL
RESERVE
SURPLUS
WAKALAH
SHAREHOLDER
S FUND
TAKAFUL
COMPANY
Wakalah Model for General takaful
Principles and Business Models of Takaful
Wakālah(agency).
1. Participants pay contributions.
3. Wakālah fees (agency commissions and administration expenses) will be channelled
to the Operator
Process
2a. Wakālah fee will be deducted from the contribution.
2b. Participants’ contributions will be apportioned into the Participants’ Risk Fund (PRF)
4. The fund will be invested in Sharī‘ah-Compliant investments
Wakalah Model for General Takaful
Principles and Business Models of Takaful
Wakālah(agency).
6. The Participants’ Risk Fund will be used for claims, Retakaful and reserve.
Process
5. Investment profit (if any) will be treated as follows:
a. Payment of performance fee to the Takaful Operator.
b. Net profit after deducting performance fee will be distributed to PRF.
7. At year's end, the surplus (if any) will be treated as follows:
a. Payment of performance fee to the Takaful Operator.
b. Net surplus after deducting performance fee will be distributed to the participants.
In the case of a deficit, the shareholders of the Operator will provide qarḍ. Note
• Wakalah Model for General Takaful
Principles and Business Models of Takaful
Wakālah(agency).
PARTICIPANTS
CONTRIBUTIONS
PARTICIPANTS
RISK FUNDS
INVESTMENT
PROFIT
CLAIMS
RETAKAFUL
RESERVE
SURPLUS
WAKALAH
SHAREHOLDER
S FUND
TAKAFUL
COMPANY
PARTICIPANTS
RISK FUNDS
PERFORMANCE
FEE
Deducted
Wakalah Model for Family Takaful
Principles and Business Models of Takaful
Wakālah(agency).
1. Participants pay contributions.
3. Wakālah fees (agency commissions and administration expenses) will be channelled
to the Operator
Process
2a. Wakālah fee will be deducted from the contribution.
2b. Participants’ contributions will be apportioned into the Participants’ Risk Fund (PRF)
and Participants’ Investment Fund (PIF)
4. The fund will be invested in Sharī‘ah-Compliant investments
Wakalah Model for Family Takaful
Principles and Business Models of Takaful
Wakālah(agency).
6. The Participants’ Risk Fund will be used for claims, Retakaful and reserve.
Process
5. Investment profit (if any) will be treated as follows:
a. Payment of performance fee to the Takaful Operator.
b. Net profit after deducting performance fee will be distributed to PRF and PIF.
7. At year's end, the surplus (if any) will be treated as follows:
a. Payment of performance fee to the Takaful Operator.
b. Net surplus after deducting performance fee will be distributed to the participants.
In the case of a deficit, the shareholders of the Operator will provide qarḍ. Note
Wakalah Model for General Takaful
Principles and Business Models of Takaful
Types of Takaful Operational Models and its Application
A partnership model
A contract between the Takaful Operator
(entrepreneur) who manages the business and the
participant(s) (capital provider) who pays the Takaful
contributions (capital)
The contract defines the profit of the Takaful
business and the ratio to be shared between the
parties.
Muḍārabah(profit
sharing)
Principles and Business Models of Takaful
The profit is defined as returns on the investment
and surplus from the underwriting in respect of the
Takaful funds only.
It does not include profits of the Shareholders’ Fund.
Under the Family Takaful business, it includes the
mortality surplus to be allocated to the eligible
participant(s).
Muḍārabah(profit
sharing)
Principles and Business Models of Takaful
Types of Takaful Operational Models and its Application
PARTICIPANTS
CONTRIBUTION
S
PARTICIPANTS
RISK FUNDS
INVESTMENT
PROFIT
CLAIMS
RETAKAFUL
RESERVE
SURPLUS SHAREHOLDER
S FUND
TAKAFUL
COMPANY
Muḍārabah(profit
sharing)
Mudarabah Model for Takaful
Principles and Business Models of Takaful
1. Participants pay contributions to the PRF.
4. the surplus will be distributed to the participants and Takaful Operator based on the
pre-agreed ratio.
Process
3. Investment profit, if any, will be shared among the participants and Takaful Operator
based on the pre-agreed ratio)
4. The fund will be invested in Sharī‘ah-Compliant investments
Muḍārabah(profit
sharing)
In the case of a deficit, the shareholders of the Operator will provide qarḍ. Note
Mudarabah Model for General Takaful
Principles and Business Models of Takaful
PARTICIPANTS
CONTRIBUTIONS
PARTICIPANTS
RISK FUNDS
INVESTMENT
PROFIT
CLAIMS
RETAKAFUL
RESERVE
SURPLUS
SHAREHOLDERS
FUND
TAKAFUL
COMPANY
PARTICIPANTS
RISK FUNDS
Muḍārabah(profit
sharing)
Mudarabah Model for Family Takaful
Principles and Business Models of Takaful
1. Participants pay contributions.
4. Investment profit will be shared among participants and the Takaful Operator based on
the pre-agreed ratio.
Process
2. Participants’ contributions will be apportioned into the Participants’ Risk Fund (PRF)
and Participants’ Investment Fund (PIF)
3. The fund will be invested in Sharī‘ah-Compliant investments
Muḍārabah(profit
sharing)
Mudarabah Model for Family Takaful
Principles and Business Models of Takaful
5. The Participants’ Risk Fund will be used for claims, retakaful and reserve.
Process
6. At year's end, the surplus will be distributed to the participants and Takaful Operator
based on the pre-agreed ratio.
Muḍārabah(profit
sharing)
In the case of a deficit, the shareholders of the Operator will provide qarḍ. Note
Mudarabah Model for Family Takaful
Principles and Business Models of Takaful
It is a combination of muḍārabah and wakālah
models.
The Operator assumes the role of entrepreneur
(muḍārib) and the agent (wakil) of the participant,
and acts as both provider of capital (rabbul māl) and
principal to the agent.
The operator can charge an agency fee as upfront
charges from the Takaful fund
Mudarabah+ Wakalah
(hybrid model)
Types of Takaful Operational Models and its Application
Principles and Business Models of Takaful
The operator will have the right to profit-sharing on the
returns on the investment of the Takaful fund in
accordance with the muḍārabah contract.
Profit from the fund comprises of surplus from
underwriting and investment returns
The operator has discretion to charge a performance
fee on surplus of the fund
Mudarabah+ Wakalah
(hybrid model)
Principles and Business Models of Takaful
Types of Takaful Operational Models and its Application
The operator has three sources of income:
the wakālah fee,
profit sharing from the investment return
returns on the investment of the shareholders fund.
The participants have two income sources
share the net underwriting surplus
profit sharing on the investment of the Takaful fund.
Mudarabah+ Wakalah
(hybrid model)
Types of Takaful Operational Models and its Application
Principles and Business Models of Takaful
PARTICIPANTS
CONTRIBUTION
S
PARTICIPANTS
RISK FUNDS
INVESTMENT
PROFIT
CLAIMS
RETAKAFUL
RESERVE
SURPLUSSHAREHOLDER
S FUND
TAKAFUL
COMPANY
Mudarabah+ Wakalah
(hybrid model)
WAKALAH
Hybrid Model
Principles and Business Models of Takaful
1. Participants pay contributions to the PRF.
4. The fund will be invested in Sharī‘ah-Compliant investments
Process
3. The participants’ contribution will be apportioned into Participants’ Risk Fund (PRF)
2 Wakālah fee will be deducted from the contribution.
Mudarabah+ Wakalah
(hybrid model)
Hybrid Model
Principles and Business Models of Takaful
5. Investment profit shared among participants and the Operator based on the pre-
agreed ratio
7. At year's end, the surplus (if any) will be treated as follows:
Payment of performance fee to the Takaful Operator.
Net surplus after deducting performance fee will be distributed to the participants
Process
6. The Participants’ Risk Fund will be used for claims, Retakaful and reserve.
In the case of a deficit, the shareholders of the Operator will provide qarḍ. Note
Mudarabah+ Wakalah
(hybrid model)
Hybrid Model
Principles and Business Models of Takaful
PARTICIPANTS
CONTRIBUTIONS
PARTICIPANTS
RISK FUNDS
INVESTMENT
PROFIT
CLAIMS
RETAKAFUL
RESERVE
SURPLUS
SHAREHOLDER
S FUND
TAKAFUL
COMPANY
PARTICIPANTS
RISK FUNDS
Mudarabah+ Wakalah
(hybrid model)
WAKALAH
Deducted
Deducted
Hybrid Model
Principles and Business Models of Takaful
1. Participants pay contributions to the PRF.
4. The fund will be invested in Sharī‘ah-Compliant investments
Process
3. The participants’ contribution will be apportioned into PRF and the PIF
2 Wakālah fee will be deducted from the contribution.
Mudarabah+ Wakalah
(hybrid model)
Hybrid Model
Principles and Business Models of Takaful
5. Investment profit shared among participants and the Operator based on the pre-
agreed ratio
7. At year's end, the surplus (if any) will be treated as follows:
Payment of performance fee to the Takaful Operator.
Net surplus after deducting performance fee will be distributed to the participants
Process
6. The Participants’ Risk Fund will be used for claims, Retakaful and reserve.
In the case of a deficit, the shareholders of the Operator will provide qarḍ. Note
Mudarabah+ Wakalah
(hybrid model)
Hybrid Model
Principles and Business Models of Takaful
Part A-Basic Takaful and Medical &
Health Takaful
12 TopicsNo Topics
1 Introduction to Shariah and Muamalat
2 Concept of Risk
3 Introduction to Takaful
4 Comparison Between Takaful and
Insurance
5 Principles and Business Models of Takaful
6 Development and Supervision of Takaful
Industry in Malaysia
7 Takaful Intermediaries
8 Introduction to Medical and Health Takaful
9 Medical and Health Takaful Types of Plan
10 Medical and Health Takaful Underwriting
11 Medical and Health Takaful Certificate
Administration
12 Medical and Health Takaful Claims
Phase I (1982-1992)
Takaful Act 1984 and the establishment of the first Takaful Operator in
1984.
BNM commences supervision of the industry
Phase II (1993-2000)
ASEAN Retakaful International (L) Ltd in 1997.
National Sharī’ah Advisory Council for Islamic Banking and Takaful.
Code of Ethics for the industry.
QUICK OVERVIEW : KEY MILESTONES
Development and Supervision of Takaful Industry in Malaysia
Phase III (2001-2010)
Establishment of IBFIM.
BNM launch of the Financial Sector Masterplan.
Islamic Financial Services Board (IFSB) inaugurated.
Establishment of Malaysian International Financial Centre.
IFSB issued on
Takaful governance
Sharī’ah governance principles
Solvency for takaful
QUICK OVERVIEW : KEY MILESTONES
Development and Supervision of Takaful Industry in Malaysia
Phase III (2001-2010)
Establishment of IBFIM.
BNM launch of the Financial Sector Masterplan.
Islamic Financial Services Board (IFSB) inaugurated.
Establishment of Malaysian International Financial Centre.
IFSB issued on
Takaful governance
Sharī’ah governance principles
Solvency for takaful
QUICK OVERVIEW : KEY MILESTONES
Development and Supervision of Takaful Industry in Malaysia
Phase IV (2011-2020)
Perbadanan Insurans Deposit Malaysia Act 2011 was gazetted.
Enforcement of Takaful Operational Framework and the revised Shariah
Governance Framework
The new Islamic Financial Services Act 2013 was enacted.
Enforcement of Risk Based Capital for Takaful.
Internal Capital Adequacy Assessment Process (ICAAP) for Takaful
Operators.
Financial Conditions Reports & Operationalisation of Financial
Ombudsman Scheme.
LIFE Framework & Phased Liberalization of Motor and Fire Tariffs.
Conversion to Single Takaful Business.
QUICK OVERVIEW : KEY MILESTONES
Development and Supervision of Takaful Industry in Malaysia
Role of Central Bank of Malaysia (Bank Negara Malaysia)
Its main purpose is to issue currency, act as banker and adviser to the
Government and regulate the country's financial institutions, credit system and
monetary policy.
BNM supervises Takaful Operators, Retakaful Operators as well as
international Takaful Operators. Malaysian Accounting Standard Board
(MASB)
MALAYSIAN LEGISLATION, REGULATORY
FRAMEWORK AND CONSUMER PROTECTION
Development and Supervision of Takaful Industry in Malaysia
BNM role as supervisor is to achieve the following objectives:
Preserve the stability of Takaful Industry
Instill public confidence in the Takaful Industry
Promote strong governance standards in the management of Takaful
Operators
Ensure that consumers are well informed for decision making
Integrate supervision across borders and sectors.
MALAYSIAN LEGISLATION, REGULATORY
FRAMEWORK AND CONSUMER PROTECTION
Development and Supervision of Takaful Industry in Malaysia
The main objectives of IFSA 2013
Islamic Financial Services Act (IFSA) 2013
Promote financial stability
Strengthen compliance with Sharī’ah
Strengthen regulatory framework for
Islamic financial institutions.
Development and Supervision of Takaful Industry in Malaysia
set the expectations on
Islamic financial
institution’s Sharī’ah
governance to ensure
that all operations and
business activities are
consistent with
Sharī’ah principles
Sharī’ah Governance Framework (SGF)
The SGF objectives
provide comprehensive
guidance to the board,
Sharī’ah committee and
management of Islamic
financial institutions in
discharging its duties on
matters relating to
Sharī’ah; and
to ensure proper
functioning of Sharī’ah
compliance through
effective Sharī’ah view
and Sharī’ah audit
functions.
Development and Supervision of Takaful Industry in Malaysia
enhance operational efficiency of Takaful business
Takaful Operational Framework (TOF)
The TOF
objectives
build healthy Takaful funds which are sustainable
enhance operational efficiency of Takaful business
promote uniformity in Takaful business practices
Development and Supervision of Takaful Industry in Malaysia
The TOF
operational processes relating to Takaful and Shareholders’ Funds including
requirements related to the setting up of funds
management of Takaful operations
management of operating costs and income of the Operators
management of assets, liabilities and surplus
rectification of deficiency of the Takaful fund
Coverage
includes
Takaful Operational Framework (TOF)
Development and Supervision of Takaful Industry in Malaysia
Sets out planned reforms to support the long-term development
of the life insurance and family Takaful industry
Life Insurance and Family Takaful Framework
The framework aims to liberalise the insurance and Takaful
market in a manner that would ultimately benefit consumers
Development and Supervision of Takaful Industry in Malaysia
Life Insurance and Family Takaful Framework
The framework aims to
PROMOTE INNOVATIONMARKET AND
A MORE COMPETITIVE
• Increase value
proposition of
products and services
• Lead to lower costs
for consumers.
PROMOTE HIGHER LEVELS OF
PROFESSIONALISM
• Strengthen
transparency,
professionalism and
market practices by
introducing a
balanced scorecard
for intermediaries
INCREASE TRANSPARENCY IN TAKAFUL PRODUCTS AND
SERVICES
• Improve product
disclosure in
sales/benefits
illustrations.
• Increase access to more
products
• Diversify distribution
channels especially direct
channels
Development and Supervision of Takaful Industry in Malaysia
Balanced Score Card (BSC) Framework
A tool to further the fair treatment to consumers.
Removal of commission limits for pure protection term products offered
through all intermediaries, subject to meeting the specific requirements for
pure protection term products offered through direct distribution channels
Removal of commission limits for pure protection critical illness and pure
protection medical and health products offered through all intermediaries,
subject to meeting the specific requirements for pure protection critical illness
and pure protection medical and health products offered through direct
distribution channels
Development and Supervision of Takaful Industry in Malaysia
Balanced Score Card (BSC) Framework
Implementation of Balanced Score Card (BSC) Framework.
Key Performance Indicators (KPIs) for all intermediaries on
number of certificates marketed or annualised first year contribution
completion rate of Customer Fact Find (CFF) form
persistency rate
number of substantiated complaints
CPD hours.
measure the specific percentage of commission payable to an intermediary
against the KPIs of the BSC Framework.
Development and Supervision of Takaful Industry in Malaysia
Malaysia Deposit Insurance Corporation Act 2011
PIDM
Established
to administer the national deposit insurance system aimed at protecting
depositors in commercial and Islamic banks.
kj
OBJECTIVES
administer a deposit insurance system and a Takaful and insurance benefits protection system
provide insurance against the loss of
part or all of deposits and provide
protection against the loss of part or all
of Takaful or insurance benefits
provide incentives for sound risk
management in the financial system
promote or contribute to the stability of the
financial system
Development and Supervision of Takaful Industry in Malaysia
Financial Consumer Complaints and Disputes
OMBUDSMAN FOR FINANCIAL SERVICES (OFS)
k
OFS Mandate
To provide financial consumers an avenue for effective and prompt
resolution of complaints/disputes arising from products and services
provided by its Members on "free of charge" basis
To resolve complaints/disputes in an independent, impartial and fair
manner;
To collaborate with Members in resolving complaints/disputes
To create awareness on matters of common interest to financial
consumers and the financial industry
Development and Supervision of Takaful Industry in Malaysia
Financial Consumer Complaints and Disputes
OMBUDSMAN FOR FINANCIAL SERVICES (OFS)
k
Types of complaints among others not handled by OFS
A complaint/dispute that is beyond the maximum monetary limit
A complaint/dispute on general pricing, product features, credit or
underwriting decisions
A complaint/dispute concerning the actuarial standards, tables and
principles which a Member uses
A complaint/dispute that has been filed in a court or arbitration or
referred to arbitration or has been decided by a court or arbitrator
A complaint/dispute that is referred to OFS after more than six months
from the date the Member has provided its final decision
Development and Supervision of Takaful Industry in Malaysia
Financial Consumer Complaints and Disputes
OMBUDSMAN FOR FINANCIAL SERVICES (OFS)
k
The recommendation of the Case Manager is not binding.
The dispute may be referred to the Ombudsman for Adjudication
The decision of Ombudsman is final and binding on the Member only if the
complainant accepts that decision.
If complainant does not accept the Ombudsman's final decision, the
complainant can pursue the claim through other means, including initiating
a legal proceeding or arbitration.
Development and Supervision of Takaful Industry in Malaysia
Financial Consumer Complaints and Disputes
BANK NEGARA MALAYSIA LINK
k
It is a centralised point of contact to facilitate a rapid and effective response
for members of the public and small and medium enterprises (SMEs) in
matters related to the financial sector.
It also provides consumer financial education, and awareness on the role of
Bank Negara Malaysia in nation building to the public.
It assist and effectively addresses matters in the areas of banking,
insurance, Takaful, SMEs financing, currency and other areas under the
purview of Bank Negara Malaysia.
Development and Supervision of Takaful Industry in Malaysia
Financial Consumer Complaints and Disputes
Personal Data Protection Act (PDPA) 2010
k
It regulates processing of personal data in a
commercial transaction.
The purpose of the PDPA :
Protect personal data belonging to the public from being misused through
commercial transactions
Protect sensitive data from being misused
Facilitate international trade
Protect consumer rights
Development and Supervision of Takaful Industry in Malaysia
Financial Consumer Complaints and Disputes
Anti-Money Laundering Anti-Terrorism Financing and Proceeds of Unlawful
Activities Act 2001 (AMLATFPUAA 2001)
k
It provides:
for the offence of money laundering
the measures to be taken for the prevention of money laundering and
terrorism financing offences
investigation powers and forfeiture of property involved in or derived
from money laundering and terrorism financing offences
Development and Supervision of Takaful Industry in Malaysia
SHARĪ’AH ADVISORY COUNCIL (SAC)
To harmonize Sharī’ah interpretation of Islamic Banking and Takaful business
under its supervision
The SAC operates as an authoritative body and independent that has the
right over Sharī’ah matters that relate to Takaful.
Objective
Development and Supervision of Takaful Industry in Malaysia
SHARĪ’AH COMMITTEE (SC)
S 30 IFSA 2013, requires each Takaful Operator to have a Sharī’ah Committee.
It ensures that the governance, business and operations of the Operator are
consistent with Sharī‘ah are detailed in the Sharī’ah Governance Framework
(SGF) .
1. To set out the rules, regulations and procedures in the establishment of a Sharī’ah
Committee
2. To define the role, scope of duties and responsibilities of a Sharī’ah Committee
3. To define relationship and working arrangement between the Sharī’ah Committee and
the SAC of Bank Negara Malaysia.
Development and Supervision of Takaful Industry in Malaysia
INDUSTRY ASSOCIATIONS
TO FACILITATE “SELF-REGULATION” AMONG INDUSTRY PLAYERS.
ALLOWS MEDIATION BETWEEN AUTHORITY AND INDUSTRY
Main purpose
Development and Supervision of Takaful Industry in Malaysia
To promote and represent the interests of the member companies and the
Takaful industry
To render where possible, to member companies such advice and
assistance as may be required
To circulate information likely to be of interest to member companies, and to
collect, collate and publish statistics and other information relating to
Takaful.
Cooperate with other associations, both domestic and global for common
interest. Conversion to Single Takaful Business.
Malaysian Takaful Association (MTA)
Main Objectives
Development and Supervision of Takaful Industry in Malaysia
1. To promote public understanding and appreciation for life insurance.
2. To strengthen the market practices of the industry through self-regulation.
3. To support the regulatory authorities in developing a strong and healthy industry.
4. To enhance the professionalism of staff and agents through continuous training and
education.
5. To liaise and work with local and foreign insurance organizations towards achieving
common objectives and benefits
Life Insurance Association of Malaysia (LIAM)
Main Objectives
Development and Supervision of Takaful Industry in Malaysia
1. To establish a sound insurance structure in Malaysia.
2. To collect and circulate information and statistics relating to general business.
3. To make rules, regulations, tariff and by-laws in consultation with the Director
General of Insurance (DGI) for implementation by the members.
4. To manage the Unplaced Motor Pool and Fire Protection Association.
5. To assist in whatever way within its capacity to reduce losses and/or
accidents, and to prevent crime.
6. To work closely with Malaysian Takaful Association in encouraging healthy
development of the insurance and Takaful industry.
Persatuan Insurans Am Malaysia (PIAM)
Main Objectives
Development and Supervision of Takaful Industry in Malaysia
1. To promote and establish a sound brokerage business in Malaysia
2. To promote and represent the interests of members.
3. To represent the interests of members by expressing views on their behalf as
may be deemed necessary and expedient.
4. To co-operate with other similar associations elsewhere in the world.
5. To work with any legal body or association appointed for consideration,
training, amendment or alteration of any law relating to insurance.
Malaysian Insurance and Takaful Brokers Association (MITBA)
Main Objectives
Development and Supervision of Takaful Industry in Malaysia
KEY ORGANISATIONS SUPPORTING THE TAKAFUL INDUSTRY
Standard Setting Bodies
Islamic Financial Services Board
(IFSB)
Malaysian Accounting
Standards Board (MASB)
Learning and Development Institutions
IBFIM
Malaysian Insurance Institute
(MII)
Supporting Associations
Association of Malaysian Loss
Adjusters
National Association of Malaysian Life
Insurance and Family Takaful Advisers
(NAMLIFA)
Motor Insurance Bureau (MIB)
Malaysian Financial Planning Council (MFPC)
Development and Supervision of Takaful Industry in Malaysia
Part A-Basic Takaful and Medical &
Health Takaful
12 Topics
No Topics
1 Introduction to Shariah and Muamalat
2 Concept of Risk
3 Introduction to Takaful
4 Comparison Between Takaful and
Insurance
5 Principles and Business Models of Takaful
6 Development and Supervision of Takaful
Industry in Malaysia
7 Takaful Intermediaries
8 Introduction to Medical and Health Takaful
9 Medical and Health Takaful Types of Plan
10 Medical and Health Takaful Underwriting
11 Medical and Health Takaful Certificate
Administration
12 Medical and Health Takaful Claims
TAKAFUL INTERMEDIARY
A professional who solicits Takaful business or invites potential
customers to enter into Takaful contracts with Takaful Operators.
They are commonly known as Takaful agents, Takaful brokers or
Financial Advisers.
Intermediaries are usually paid commissions or brokerage fees
based on a percentage of the contributions made by customers who
are also called “participants”.
Definition
Takaful Intermediaries
TYPES OF TAKAFUL INTERMEDIARIES
Takaful Agent
Takaful Broker
Financial Adviser
Takaful Intermediaries
TYPES OF TAKAFUL INTERMEDIARIES
Takaful Agent : a person who does all or any of the following:
• Solicits or obtains a proposal on behalf of a Takaful Operator
• Offers or acts on behalf of a Takaful Operator in negotiating
a Takaful certificate;
• Does any other act on behalf of a Takaful Operator in
relation to the issuance, renewal or continuance of a
Takaful certificate.
IFSA 2013
(Definition of a Takaful Agent)
Takaful Intermediaries
TYPES OF TAKAFUL INTERMEDIARIES
MAIN DUTIES OF A TAKAFUL AGENT
• Promotion of Takaful products and services
• Giving advisory services (related to Takaful products) and support
to the clients
• To submit proposal to the principal as required.
• Provide general awareness about Takaful products and services.
• Maintain good rapport with his/her existing and prospective clients.
• Aware about the market conditions to guide their customers
accordingly.
Takaful Intermediaries
TYPES OF TAKAFUL INTERMEDIARIES
A person who, as an independent contractor, carries out Takafuland/or Retakaful broking business.
• Is independent of any Takaful Operator
• Represents the interests of the potential participant in
searching for Takaful coverage at the lowest cos
• Provides the most comprehensive benefit to the potential
participant
IFSA 2013
(Definition of a Takaful Broker
Takaful Intermediaries
TYPES OF TAKAFUL INTERMEDIARIES
Main duties of a Takaful broker
• Assists the customer in obtaining and renewing a Takaful
cover from a Takaful Operator.
• Recommends and advises the customer on the most
appropriate Takaful plan coverage and terms being offered by
Takaful Operators.
Takaful Broker
Takaful Intermediaries
TYPES OF TAKAFUL INTERMEDIARIES
A financial advisory business is defined as
• analysing the financial planning needs of a person relating to a Takaful product
• recommending an appropriate Takaful product to a person
• sourcing a Takaful product for a person
• arranging a contract in respect of a Takaful product for a person
• such other business, service or activity in relation to a financial service.
Financial Adviser
An independent party that provides financial advisory business
Takaful Intermediaries
DIFFERENCES BETWEEN THE INTERMEDIARIES
Intermediary Represents Licensed/Registere
d by
AGENT Takaful Operator MTA
BROKER Customer BNM
FINANCIAL
ADVISER
Customer BNM
TYPES OF TAKAFUL INTERMEDIARIES
Takaful Intermediaries
TAKAFUL AGENT ACT CONDUCT UNDER ISLAMIC FINANCIAL
SERVICES 2013
Disclosure Requirement “
• Section 140 (Para 10) of IFSA 2013 requires all agents to inform potential customers
that he is an agent and acting on behalf of a particular Takaful Operator.
Takaful Agent to Represent Licensed Takaful Operator
• Section 26 of IFSA 2013 states no person shall market or promote Takaful products or
business as an agent or broker for a person or operator other than a licensed Takaful
Operator.
• Any person found guilty of this provision, can be fined not exceeding RM50 million or
imprisonment not exceeding 10 years, or both.
Non-Compliant of IFSA 2013
Section 136 (4) of IFSA 2013 states that if any agent is found to be non-compliant with
the provisions of the Act and if found guilty, can be fined not exceeding RM10 million or
imprisonment for a period not exceeding five years or both
Takaful Intermediaries
RIGHTS OF A TAKAFUL AGENT
The agent’s right to receive payment for his services, usually in the form of a commission or a
fee
The agent’s right to reimbursement of moneys expended with the express authority of his
principal within the acceptable limits.
The agent’s right to perform his duties in the manner which he considers to be appropriate.
Takaful Intermediaries
OBLIGATIONS OF THE PRINCIPAL
Takaful Intermediaries
To pay remuneration and expenses as agreed; or, failing agreement, as is
customary; or, failing a custom, to pay what is reasonable.
Indemnify the agent against consequences of any act lawfully done,
within his authority, on behalf of his principal
TERMINATION OF AGENCY
The relationship of principal and agent may be terminated by act of the
parties or by operation of law as follows
By notice of revocation given by the principal to the agent
By notice of renunciation given to the principal by the agent
By completion of the transaction where the authority was given for that transaction only
By expiration of the period stipulated in the contract of agency.
By mutual agreement.
By death, lunacy or bankruptcy of the principal or agent.
By operation of any law which renders the contract of an agent illegal
Takaful Intermediaries
Part A-Basic Takaful and Medical &
Health Takaful
12 TopicsNo Topics
1 Introduction to Shariah and Muamalat
2 Concept of Risk
3 Introduction to Takaful
4 Comparison Between Takaful and
Insurance
5 Principles and Business Models of Takaful
6 Development and Supervision of Takaful
Industry in Malaysia
7 Takaful Intermediaries
8 Introduction to Medical and Health Takaful
9 Medical and Health Takaful Types of Plan
10 Medical and Health Takaful Underwriting
11 Medical and Health Takaful Certificate
Administration
12 Medical and Health Takaful Claims
Item 4 of the Guidelines on Medical and Health Takaful Business
Medical and Health Takaful certificate as a certificate of Takaful that provides specified
benefits against risks of persons becoming totally or partially incapacitated as a result of
sickness or infirmity
reimbursement of a lump sum payment, or
payment of an allowance or income stream at regular intervals for a specified
period in the event of participants. incapacitation and/or hospitalization.
DEFINES
BENEFITS
Introduction to Medical and Health Takaful
CATEGORIES OF MEDICAL AND HEALTH TAKAFUL
Introduction to Medical and Health Takaful
2 CATEGORIES
A medical plan that reimburses
the participants for relevant
medical expenses incurred.
(example of an indemnity
certificate is Hospitalisation and
Surgical Takaful)
Indemnity Certificate
A plan that pays a pre-
determined sum of money if a
covered event occurs during the
certificate period. (example is
Hospitalisation Cash Benefit
plan and Critical Illness Takaful
Benefit Certificate
CHARACTERISTICS OF MEDICAL AND HEALTH TAKAFUL
Introduction to Medical and Health Takaful
Main
characteristics
A plan that usually provides
payment of claims up to the
limits stipulated in the Takaful
certificate
The payment of a claim does not
result in a termination of the
certificate except in the event of
a death claim
Non-Termination of Coverage
with Claims Payment
Medical and Health Takaful
also takes into account the
morbidity of the participants
(probability of a disability
resulting from an accident or
illness).
Generally, with this kind of risk,
it increases with age.
Increase of Risk with Time in
Medical and Health Takaful
CHARACTERISTICS OF MEDICAL AND HEALTH TAKAFUL
Introduction to Medical and Health Takaful
Claims limits stipulated in the Takaful certificate
Limit Description
Per disability limit The maximum amount of benefits
available to a participant per
disability
Overall annual limit The maximum amount of benefits
available to a participant in any
particular certificate year
Lifetime limit The maximum amount of benefits
available to a participant during his
lifetime.
COST CONTAINMENT MEASURES
Introduction to Medical and Health Takaful
Various methods are used to contain costs and abuses arising from
inflated claims
Inner limits An inner limit is a limit within a limit (the
maximum that he can claim although his
annual limit might be higher than that)
Schedule of surgical procedures Outlines the list of surgical procedures
covered by the certificate.
Maximum period of compensation The maximum period that the certificate
will cover the participant for any
services/treatment. Example, the plan
may cover room and board for a
maximum 30 days for an admission.
COST CONTAINMENT MEASURES
Introduction to Medical and Health Takaful
Various methods are used to contain costs and abuses arising from
inflated claims
Co-Takaful • The amount that the covered person
must pay out-of-pocket before the
certificate pays for a particular hospital
admission, visit or services.
• Usually it will be a fixed percentage or
an amount which is clearly spelled-out
in the certificate.
• The co-Takaful must be paid each time
a claim is made by a covered person.
Co-payment Upgrading (higher than coverage) to a
Room & Board (R&B) rate may need to
share a certain percentage of the total
medical bill with the Takaful Operator.
Various methods are used to contain costs and abuses arising from
inflated claims
Deductible Deductible is a fixed amount the
participant must first pay regardless of the
total cost of an eligible benefit.
Panel of Hospitals List of hospital covered by the certificate.
COST CONTAINMENT MEASURES
Introduction to Medical and Health Takaful
“CASHLESS” HOSPITAL ADMISSION
When the participant is hospitalized
admission to a panel hospital is by the issuance of a letter of guarantee and
the hospital deposit may be eliminated.
Upon discharge from the hospital, the participant does not have to settle the
bill with the hospital.
All the eligible benefits will be taken care of by the Takaful Operator.
The Takaful operator represented by a third party administrator, co-ordinates
with the hospital and settles the bill.
The claimant only needs to pay for non-reimbursable charges.
“Cashless” hospital admission arrangements are usually a value-added service
provided by the Takaful Operator to certain eligible certificate owner.
Introduction to Medical and Health Takaful
THIRD PARTY ADMINISTRATOR
Third Party Administrators are the representatives of the Takaful
Operator who are responsible for settling both reimbursement
claims as well as cashless claims.
The Third Party Administrators are also responsible for processing
the claimants request for cashless service.
Introduction to Medical and Health Takaful
FUNCTIONS OF THIRD PARTY ADMINISTRATORS
Cashless Service The third party administrators ensure the bill is paid
directly by the Takaful operator and the participant does
not have to make advance payment
Claim Settlement Third party administrators will do all the necessary tasks
with regard to the claims - complete from intimations of
claims …to… finally disbursing the claims to the
customer
Maintaining
Database
Once the certificate has been issued, all the records are
passed on to the third party administrators and all further
communication of the participant is with the third party
administrators and not with the Takaful operator.
THIRD PARTY ADMINISTRATOR
Introduction to Medical and Health Takaful
Takaful Operators have the obligation to disclose sufficient and
essential information to the prospective participants to help them have
a better understanding of the plan and reduce lapses due to non-
contribution.
These standard state the disclosure requirements that Takaful
Operators must comply with.
Minimum Standards on Product Disclosure and
Transparency in the Sale of Medical and Health
Takaful Plan
Introduction to Medical and Health Takaful
The important features of the Standards are as follows:
The Standards apply to all types of individual Medical and Health Takaful
plans including riders attached to individual family plans.
For group Medical and Health Takaful plans, Takaful Operators should
ensure that the disclosures are made to the master certificate owners
The Standard shall apply to all channels through which Medical and Health
Takaful plans are distributed.
Minimum Standards on Product Disclosure and
Transparency in the Sale of Medical and Health
Takaful Plan
Introduction to Medical and Health Takaful
Item 8 of the Standard states that there are particular aspects of Medical
and Health Takaful plan features and Takaful certificates that need
careful explanation to prospective participants.
Information on the Takaful Operator
Product description
Benefits of a particular Medical and Health Takaful plan includes
Minimum Standards on Product Disclosure and
Transparency in the Sale of Medical and Health
Takaful Plan
Introduction to Medical and Health Takaful
the “free-look period/cooling-off period” of 15 days from the delivery
date of the certificate to review the suitability of the plan.
Participants can return the certificate within the 15 days
Deduction of expenses incurred for the medical examination would be made
to the contributions
The implications of switching from one type of plan to another or from
one provider to another
Checklist indicating confirmation that the intermediary has clearly
highlighted important aspects of the product to the proposer
Minimum Standards on Product Disclosure and
Transparency in the Sale of Medical and Health
Takaful Plan
Other important disclosures
Introduction to Medical and Health Takaful
Part A-Basic Takaful and Medical &
Health Takaful
12 TopicsNo Topics
1 Introduction to Shariah and Muamalat
2 Concept of Risk
3 Introduction to Takaful
4 Comparison Between Takaful and
Insurance
5 Principles and Business Models of Takaful
6 Development and Supervision of Takaful
Industry in Malaysia
7 Takaful Intermediaries
8 Introduction to Medical and Health Takaful
9 Medical and Health Takaful Types of Plan
10 Medical and Health Takaful Underwriting
11 Medical and Health Takaful Certificate
Administration
12 Medical and Health Takaful Claims
Medical and Health Takaful Types of Plan
Hospitalisation and Surgical Takaful Plan
Hospitalisation Income Benefits
Critical Illnesses
MEDICAL AND HEALTH TAKAFUL
Hospitalisation and Surgical Takaful Plan
MEDICAL AND HEALTH TAKAFUL
This plan covers the expenses for hospitalization
treatment and surgical cost.
covers the following
1. Hospital Room and Board 7. In-hospital Physician’s Visits
2. Intensive Care Unit 8. Pre-Hospitalization Diagnostic Tests
3. Hospital Supplies and Services 9. Pre-Hospitalization Specialist
Consultation
4. Anesthetist’s Fees 10. Post-Hospitalization Treatment
5. Surgeon’s Fees 11. Ambulance Fees.
6. Operating Theatre Fees 12. Emergency Accidental Outpatient
Treatment
Medical and Health Takaful Types of Plan
Hospitalisation and Surgical Takaful Plan
Some plans may be extended to cover the following
Hospital Cash Allowance.
Outpatient Cancer Treatment.
Outpatient Kidney Dialysis.
Organ Transplant
MEDICAL AND HEALTH TAKAFUL
Medical and Health Takaful Types of Plan
• This plan provides participants with daily cash benefit if the
participant is hospitalised
• It can be offered as stand-alone certificate or as rider to
Family Takaful or Medical and Health Takaful plan.
covers the following
Hospitalisation Income Benefits
MEDICAL AND HEALTH TAKAFUL
Medical and Health Takaful Types of Plan
• Critical Illnesses is a Takaful plan which provides a lump sum
benefit if the person covered is diagnosed with one of the
specific illnesses on a predetermined list as part of the
certificate.
Critical Illnesses
MEDICAL AND HEALTH TAKAFUL
• Medical and Health Takaful Types of Plan
GROUP MEDICAL AND HEALTH TAKAFUL PLAN
Group Medical and Health Takaful plan is similar in cover to
individual medical and health plan.
It is normally an employer-sponsored coverage for business
owners, employees and often for dependents.
The contributions for group medical and health plan is calculated
based on the following:
Average age of the group.
Degree of occupational hazard.
Medical and Health Takaful Types of Plan
GENERAL EXCLUSIONS
Medical and Health Takaful Types of Plan
Medical and Health Takaful usually excludes the following
1. Pre-existing illness at the time of application
2. Claims for illness or injury caused through illegal or unlawful acts
3. Pregnancy or childbirth
4. Venereal disease, infection or parasites
5. Murder or physical assault.
6. Cosmetic or plastic surgery
KEY TERMS AND CONDITIONS
Terms Descriptions
Pre-existing
Conditions
These are disabilities that existed before the
effective date of the individual cover
Misstatement of Age Age affects the contribution rate.
Misstatement of age that lead to a
lower/higher contribution
Any claims under the certificate will be pro-
rated, - contribution that should have been
charged according to correct age.
Medical and Health Takaful Types of Plan
KEY TERMS AND CONDITIONS
Terms Descriptions
Qualifying Period The eligibility of benefits under the Takaful plan will
commence 30 days after the effective date of the coverage
except for accidental causes.
Co-Takaful A form of medical cost sharing in a Medical and Health
Takaful plan where the participant has to pay a certain
amount of his medical fees, (10% - 20%) of the total bill.
The balance will then be covered by the Medical and
Health Takaful plan
Co-Payment Upgrading to a Room & Board rate higher than what is
covered may trigger a co-payment clause in the Takaful
contract.
The participant will need to share a certain percentage of
the total medical bill with the Takaful Operator.
Medical and Health Takaful Types of Plan
Part A-Basic Takaful and Medical &
Health Takaful
12 TopicsNo Topics
1 Introduction to Shariah and Muamalat
2 Concept of Risk
3 Introduction to Takaful
4 Comparison Between Takaful and
Insurance
5 Principles and Business Models of Takaful
6 Development and Supervision of Takaful
Industry in Malaysia
7 Takaful Intermediaries
8 Introduction to Medical and Health Takaful
9 Medical and Health Takaful Types of Plan
10 Medical and Health Takaful Underwriting
11 Medical and Health Takaful Certificate
Administration
12 Medical and Health Takaful Claims
Phase I (1982-1992)
Takaful Act 1984 and the establishment of the first Takaful Operator in
1984.
BNM commences supervision of the industry
Phase II (1993-2000)
ASEAN Retakaful International (L) Ltd in 1997.
National Sharī’ah Advisory Council for Islamic Banking and Takaful.
Code of Ethics for the industry.
DEVELOPMENT AND SUPERVISION OF TAKAFUL
INDUSTRY IN MALAYSIAQUICK OVERVIEW : KEY MILESTONES
Medical and Health Takaful Underwriting
Process of selecting risks for Takaful and classifying them according to their risk
profiles so that the appropriate rates and terms may be assigned.
The process enables the operator to :
accept or decline the participation,
if it is to accept the participation
what will be the contribution to be paid by the proposer or the amount of tabarru’ to
be credited into the special or risk account of the Takaful fund, and other terms and
conditions to be imposed.
TAKAFUL UNDERWRITING
UNDERWRITING
Medical and Health Takaful Underwriting
The main purpose is to protect the Takaful fund from undue financial
strain or exposure and mitigate the effect of risks on the fund (if and
when the risks occur)
Purpose of
Underwriting
to ensure that the Takaful fund is sufficient to pay claims
to provide a margin of profit for the Takaful Operator.
THE END RESULT
TAKAFUL UNDERWRITING
Medical and Health Takaful Underwriting
TAKAFUL UNDERWRITING
The main purpose is to protect the Takaful fund from undue financial
strain or exposure and mitigate the effect of risks on the fund (if and
when the risks occur)
Purpose of
Underwriting
to ensure that the Takaful fund is sufficient to pay claims
to provide a margin of profit for the Takaful Operator.
THE END RESULT
Medical and Health Takaful Underwriting
Factors in
Underwriting
1. Age 5. Lifestyle/hobby
2. Gender 6. Sum covered
3. Health and health history 7. Current Takaful/insurance in force
4. Occupation and occupation history 8. Financial condition.
TAKAFUL UNDERWRITING
Medical and Health Takaful Underwriting
ANTI-SELECTION
Anti-selection occurs when more sub-standard risks are accepted
for coverage, resulting in less than favourable underwriting
results.
It is an indication of Operators lacking good underwriting controls,
and eventually ending up with a portfolio that contains a higher
proportion of less favourable risks.
TAKAFUL UNDERWRITING
Medical and Health Takaful Underwriting
ADEQUACY OF CONTRIBUTION
Takaful Operators are required to run their operations in an equitable and
fair manner for all participants.
It has to ensure that contribution charged is reasonable, adequate,
equitable and fair among participants.
TAKAFUL UNDERWRITING
Medical and Health Takaful Underwriting
UNDERWRITING PROCESSES
Identification and
evaluation of risk
Selection of Risk
Underwriting Decisions
Medical and Health Takaful Underwriting
UNDERWRITING PROCESSES Identification and evaluation
of risk
Takaful Operator will need to identify and evaluate the physical and
moral hazards associated with the proposed risk.
To assess a person’s risk, the underwriter relies on information from
a range of sources . Proposal form
Agent Statement
Medical rrecords
Attending Physician Statement
Hospital Medical Report
Medical and Health Takaful Underwriting
UNDERWRITING PROCESSES SOURCES
for Identification
and Evaluation of Risk
1. THE PROPOSAL FORM
The form signifies the contract between participant and the Takaful
Operator.
It must be completed by the proposer, who may seek the assistance of a
Family Takaful agent to fill it up
The responsibility of the Takaful agent in the application process includes:
1. Ensure the application is completed fully.
2. Ensure all questions are answered accurately.
3. Ensure contributions are handled correctly.
Medical and Health Takaful Underwriting
UNDERWRITING PROCESSES SOURCES
for Identification
and Evaluation of Risk
2. AGENT STATEMENT
The statement is part of the application, and requires that the agent
provides certain information regarding the proposer
proposer’s financial status, habits, general character,
and any other information needed for risk assessment.
Medical and Health Takaful Underwriting
UNDERWRITING PROCESSES SOURCES
for Identification
and Evaluation of Risk
3. MEDICAL REPORT
Where necessary, the Underwriter will request the proposer to undergo a medical
examination.
The medical examination includes questions about the proposer’s medical history,
height, weight, pulse, and blood pressure.
Additional requirements may be needed and includes
1. An examination by a physician
2. Resting EKG
3. Treadmill stress test
4. Chest x-ray
Medical and Health Takaful Underwriting
UNDERWRITING PROCESSES SOURCES
for Identification
and Evaluation of Risk
4. ATTENDING PHYSICIAN STATEMENT (APS)
By signing and submitting the application, the proposer is giving the Takaful
Operator the right to obtain and review the medical records; both prior to and
after becoming an accepted medical and health plan member.
5. HOSPITAL MEDICAL REPORT
The physician treating the proposer provided in an APS is evidence of the
proposer’s mortality risk
Medical and Health Takaful Underwriting
SELECTION OF RISK
Next step, the underwriter decides on whether to accept, accept with condition, decline or
defer the proposal
RISK SELECTION
FACTORS RISK EVALUATION
Current and Past
Health Factors
The current and past health of the applicant is investigated
Financial Factors The underwriter will look into the proposer’s overall financial situation
Occupational Factors Different occupations have a different level of hazard.
Selection of Risk
Medical and Health Takaful Underwriting
SELECTION OF RISK
• Medical and Health Takaful Underwriting
FACTORS RISK EVALUATION
Occupational
Factors
Occupation is categorized into four classes below:
Class 1 refers to white collar workers in non-hazardous industry
confined within the office premise
Class 2 refers to workers overseeing or superintending,
involved in non-office works (riskier than Class 1)
Class 3 refers to skilled or semi-skilled workers using light
machinery.
Class 4 refers to industrial workers involved with heavy and
hazardous machinery.
Selection of Risk
Medical and Health Takaful Underwriting
FACTORS RISK EVALUATION
Age and Gender Females have lower mortality but higher morbidity (sickness)
than males of the same age group.
As age increases, mortality and morbidity increases
Standard - if the risk is considered normal risk
Rated - if the risk is considered higher than normal risk.
Selection of Risk
Risk Classification
SELECTION OF RISK
MEDICAL UNDERWRITING
Medical underwriting is the process of reviewing :
a medical and health Takaful proposer’s medical records
determining the level of risk
prevent adverse selection
As part of the underwriting process, health information may be used in
making two related decisions:
Whether to offer or deny coverage; and
What contribution rate to set for the certificate.
Selection of Risk
Medical and Health Takaful Underwriting
MEDICAL UNDERWRITING
For medical underwriting, the underwriter requires information about pre-existing medical conditions which covers:
Selection of Risk
Current Physical
Condition
The application form
requires details of medical
history and current
physical condition
Medical History
The underwriter may
require further
investigation if there are
medical histories listed
in the proposal form.
review histories of
previous conditions to
determine
1. Possibility of recurrence. 3. Complications that may develop at a
later date.
2. Effect of a medical history on the
applicant’s general health.
4. Normal progression of any impairment
and its future impact. Example, obesity,
Medical and Health Takaful Underwriting
Selection of Risk
A section of the proposal form asks several questions about the
medical history of family members.
There are clear correlations between the presence of certain life-
threatening conditions and genetic development,
The underwriter will consider the proposer’s family history as
indicators of the participant’s own risk.
MEDICAL UNDERWRITING
Medical and Health Takaful Underwriting
UNDERWRITING PROCESS
Once the analysis of the provided information is complete, the
underwriter basically has three options:
RISK DECISION CONDITIONS
STANDARD ACCEPT -
SUB-STANDARD ACCEPT (with
conditions)
The conditions can be in form of:
. Exclusion rider
. Extra contribution
. Change in benefits
. Some combination of these approaches.
SUB-STANDARD
(UNINSURABLE)
DECLINE
The Contribution rate to commensurate with the risk shared.
Underwriting Decisions
Medical and Health Takaful Underwriting
Renewal of Medical and Health Takaful
1. Non-Cancellable and Guaranteed
Renewable
2. Guaranteed Renewable
the certificate cannot be cancelled and the
contract provisions cannot be changed
without participant’s consent (as long as the
participants continue pay the contributions).
There are two important guarantees:
a. The contribution will not be increased.
b. The Operator will not refuse to renew the
coverage.
As long as the contributions are paid on the
certificate, the Takaful Operator is obliged
to renew the certificate (if lifetime limit is not
exceeded).
Takaful Operator can raise contributions as
long as the change affects an entire class
of participants and not a specific
participant.
In the long run, guaranteed renewable
certificate are safer
Medical and Health Takaful Underwriting
3. Conditionally Renewable 4. Optionally Renewable
A contract that allows the certificate to be
renewed under certain conditions.
The contribution may be increased and
benefits modified on a class basis.
The Takaful Operator may or may not
renew the certificate at its option on the
certificate's anniversary date
Midterm cancellation is not permissible
Renewal of Medical and Health Takaful
Medical and Health Takaful Underwriting
Medical and Health Takaful Underwriting
The contribution payment will depend on the type of the certificate. Somecertificates are issued on “cash-before-cover” basis, whereas other certificate may
be subject to the 60 days contribution warranty.
A grace period maybe allowed in the case of guaranteed renewable certificates,conditional renewal certificates and non-cancellable certificates, to provide theconvenience to the certificate owner to make the payment.
Any claim occurring during the grace period is not payable (although thecertificate is not considered lapsed.
The certificate will lapse if no payment of contribution is made before the end ofthe grace period.
CONTRIBUTION PAYMENT
A medical and health Takaful will automatically terminate upon:
Death of the participant;
Certificate anniversary immediately following the participant’s
maximum eligibility age
Total benefits paid under the certificate exceed the maximum
limit specified in the benefits schedule.
AUTOMATIC TERMINATION OF A CERTIFICATE
Medical and Health Takaful Underwriting
PERSONAL INCOME TAX RELIEF
1. Deduction from taxable income of up to a maximum of RM3,000 for the
contribution for Education and/or Medical Takaful.
2. Deduction from taxable income of up to a maximum of RM6,000 allowed
for contribution in respect of Family Takaful certificate and contributions
to approved retirement schemes.
Medical and Health Takaful Underwriting
PERSONAL INCOME TAX RELIEF
Medical and Health Takaful plan coverage should be for a period of 12
months or more.
The plan can be a stand-alone certificate or as a rider to a Family Takaful.
If it is a rider, only the rider contribution can qualify for deduction.
OTHER CONSIDERATIONS
Inland Revenue Board requires proof of such contribution payment in order to
qualify for the tax allowance..
NOTE
Medical and Health Takaful Underwriting
No Topics
1 Introduction to Shariah and Muamalat
2 Concept of Risk
3 Introduction to Takaful
4 Comparison Between Takaful and
Insurance
5 Principles and Business Models of Takaful
6 Development and Supervision of Takaful
Industry in Malaysia
7 Takaful Intermediaries
8 Introduction to Medical and Health Takaful
9 Medical and Health Takaful Types of Plan
10 Medical and Health Takaful Underwriting
11 Medical and Health Takaful Certificate
Administration
12 Medical and Health Takaful Claims
Part A-Basic Takaful and Medical &
Health Takaful
12 Topics
Medical and Health Takaful Certificate Administration
Certificate administration involves the exchange and issuance of documents
evidencing the existence of a valid contract of Takaful.
OVERVIEW OF MEDICAL AND HEALTH TAKAFUL CERTIFICATE ADMINISTRATION
Proposal Form
Certificate
Endorsement
Renewal Notice
Proof of contribution payment for tax relief
documents include
Medical and Health Takaful Certificate Administration
OVERVIEW OF MEDICAL AND HEALTH TAKAFUL CERTIFICATE ADMINISTRATION
PROPOSAL
FORM The proposal form is used to together information required
for underwriting
PROPOSAL FORM : Generally comprised of the following items
1. Disclosure statement as required under Section 141 of the Islamic Financial Services
Act 2013
2. Basic questions on the proposer such as name, occupation, etc.
3. Information of previous and present insurance/ Takaful
4. Specific questions relating to medical and health such as family and medical history,
smoking habits, hazardous hobbies and AIDS-related questions
Medical and Health Takaful Certificate Administration
OVERVIEW OF MEDICAL AND HEALTH TAKAFUL CERTIFICATE ADMINISTRATION
CERTIFICATEIt stamped certificate represents the written evidence of the
Takaful contract
The certificate is divided into the following sections:
1. Heading Comprising of the full name and the registered
address of the Operator
2. The Preamble or Recital Clause This clause introduces or recites the parties in
the contract - the Operator and the participant.
Medical and Health Takaful Certificate Administration
OVERVIEW OF MEDICAL AND HEALTH TAKAFUL CERTIFICATE ADMINISTRATION
CERTIFICATEIt stamped certificate represents the written evidence of the
Takaful contract
The certificate is divided into the following sections:
3. Operative Clause It specifies the perils covered under the
certificate and the circumstances in which the
Operator will make compensation or its
equivalent to the participant.
4. Exclusions These are restrictions on the scope of the
Takaful cover and are inserted because certain
perils and losses cannot be covered under the
certificate.
Medical and Health Takaful Certificate Administration
OVERVIEW OF MEDICAL AND HEALTH TAKAFUL CERTIFICATE ADMINISTRATION
The Schedule of
Benefits
The schedule of benefit provides for the following information
1. participant’s name and address 6. date of birth of the participant
2. contribution 7. period of Takaful
3. certificate number 8. occupation of the participant
4. date of issue 9. specific exclusion clause
5. agency 10. various types and amounts of
benefits.
Medical and Health Takaful Certificate Administration
OVERVIEW OF MEDICAL AND HEALTH TAKAFUL CERTIFICATE ADMINISTRATION
Attestation or Signature Clause Conditions
It makes provision for the Takaful
Operator to attest the undertakings.
The certificate is signed by an
authorized official of the Takaful
operator
These can be expressed or implied.
Express conditions are printed on the
certificate
Absence of express conditions, the
contract of Takaful would be subject
only to implied conditions
Medical and Health Takaful Certificate Administration
OVERVIEW OF MEDICAL AND HEALTH TAKAFUL CERTIFICATE ADMINISTRATION
Implied Conditions
Duty of utmost good faith
Existence of permissible interest
Existence of subject matter of Takaful products
Identification of subject matter of Takaful.
Medical and Health Takaful Certificate Administration
The alterations to be made may relate to any of the following:
OVERVIEW OF MEDICAL AND HEALTH TAKAFUL CERTIFICATE ADMINISTRATION
ENDORSEMENT
Variation in amount of benefits;
Change in any maximum benefit period
change in occupational risk
cancellation of Takaful
change in name and address
extension of Takaful coverage to cover additional members of the family
• Medical and Health Takaful Certificate Administration
RENEWAL NOTICE
OVERVIEW OF MEDICAL AND HEALTH TAKAFUL CERTIFICATE ADMINISTRATION
For an annual renewable Medical and Health Takaful plan, a renewal notice
is issued one or two months before the date of expiry
particulars in renewal notice
Participant’s name Annual contribution
Certificate number Revised certificate terms (if any);
Certificate expiry date Requesting to disclose any material alterations in
the risk since inception or last renewal date
No Topics
1 Introduction to Shariah and Muamalat
2 Concept of Risk
3 Introduction to Takaful
4 Comparison Between Takaful and
Insurance
5 Principles and Business Models of Takaful
6 Development and Supervision of Takaful
Industry in Malaysia
7 Takaful Intermediaries
8 Introduction to Medical and Health Takaful
9 Medical and Health Takaful Types of Plan
10 Medical and Health Takaful Underwriting
11 Medical and Health Takaful Certificate
Administration
12 Medical and Health Takaful Claims
Part A-Basic Takaful and Medical &
Health Takaful
12 Topics
Medical and Health Takaful Claims
The Takaful certificate owner must notify the Operator in writing of any claim within a
reasonable period, which is usually between 14 days to 30 days.
The two main reasons why the claim notification is important:
- Takaful Operator must be given the opportunity to investigate the claim.
- Takaful Operator needs to raise a provision for the potential cost of the claim.
Upon confirmation of the claim, the Takaful Operator must confirm whether the loss is
covered under the certificate.
NOTIFICATION OF CLAIM
MEDICAL HEALTH TAKAFUL CLAIMS
Medical and Health Takaful Claims
In the case of a claim for hospital or medical expenses benefit, proof of hospital
confinement (original hospitalization bill and claim form) must be furnished
The claimant must submit all their documents for the easy processing
PROOF OF ILLNESS/CLAIM
MEDICAL HEALTH TAKAFUL CLAIMS
Proof of identification
The copy of the certificate document
The original bills of the hospitals in which the insured was admitted
The discharge certificate from the hospital;
The original investigation reports
Medical and Health Takaful Claims
The Medical and Health Takaful Claim Form is designed to elicit the information needed to
determine the Takaful Operator's liability under the certificate.
It includes a claimant's statement and an attending physician statement
The claimant needs to provide the authorization permitting any medical provider, physician,
or employer to release records or information concerning the insured’s medical history or
employment status
CLAIM FORM
MEDICAL HEALTH TAKAFUL CLAIMS
Medical and Health Takaful Claims
Determine whether or not the claim is valid by checking among other things:
whether the certificate is in force,
contribution has been paid,
is the loss caused by an insured peril, etc.
Once the claims department completed the preliminary check and found the claim is valid:
a claim form will be given to the claimant.
the claim form does not mean liability is admitted under the certificate.
CHECKING PROCESS
MEDICAL HEALTH TAKAFUL CLAIMS
Medical and Health Takaful Claims
All claims must be registered in the claim register once it is notified to the Takaful Operator
The claims register must be maintained as long as the Operator is still liable for the claims.
CHECKING PROCESS
MEDICAL HEALTH TAKAFUL CLAIMS
Medical and Health Takaful Claims
The Medical and Health Takaful Claim Form is designed to elicit the information needed to
determine the Takaful Operator's liability under the certificate.
It includes a claimant's statement and an attending physician statement
The claimant needs to provide the authorization permitting any medical provider, physician,
or employer to release records or information concerning the insured’s medical history or
employment status
CLAIM FORM
MEDICAL HEALTH TAKAFUL CLAIMS
Medical and Health Takaful Claims
Upon receipt of the claim notification, the claims department will determine whether the
Operator is liable for the loss.
The extent of the investigation will depend on the complexity and size of the claim.
CLAIM INVESTIGATION
MEDICAL HEALTH TAKAFUL CLAIMS
Medical and Health Takaful Claims
CLAIM INVESTIGATION
Step 1 : Investigate to determine whether:
The loss exists.
The loss is caused by a peril covered under the certificate.
The loss does not fall within the scope of an exclusion of the certificate.
The person making the claim is the rightful claimant
Step 2 : Check the claims documentation e.g. claims form, bills, etc.
Step 3 : Request for additional documentations such as medical report, attending
physician statement and etc. (if necessary)
MEDICAL HEALTH TAKAFUL CLAIMS
Medical and Health Takaful Claims
Takaful operator may repudiate liability on several grounds:
Non existence of loss as reported
The loss or damage was due to the peril not covered under the certificate.
The loss or damage was covered under an exclusion
The certificate has been rendered void as a result of a breach in condition.
REPUDIATION OF LIABILITY BY TAKAFUL OPERATOR
Upon rejecting the claim, the Operator will notify the claimant in writing
MEDICAL HEALTH TAKAFUL CLAIMS
Medical and Health Takaful Claims
The disputes between claimants and the Takaful operator generally will involve one
of the following two issues:
The question of whether the Takaful operator is liable
The quantum of loss, where the Takaful operator is liable
DISPUTES
Medical and Health Takaful Claims
DISPUTE MAY BE RESOLVED THROUGH
Negotiation and Compromise Settlement Mediation
Normally at the beginning, claimant may meet the
Takaful Operator to settle the dispute through
discussion.
The Ombudsman for Financial Services is
approved under the Financial Services Act
2013 and Islamic Financial Services Act 2013
It aims to provide a fair and efficient avenue for
financial consumers to resolve disputes
against financial service providers
Arbitration Litigation
Arbitration is a widely used to end disputes.
Arbitration takes place out of court
The two sides :
select an impartial third party (arbitrator)
they agree in advance to comply with the
arbitrator's award
they participate in a hearing where both sides
can present evidence and testimony
The arbitrator's decision is usually final, and courts
rarely re-examine it.
A claimant may take the Takaful Operator to
court if he is unhappy with the outcome of his
discussion/negotiation with the claim
department.
However, litigation is considered a last option
as it will normally involve a high cost.
Part C-Basic Takaful and
Medical & Health Takaful
13 TopicsNo Topics
1 Family Takaful Preliminaries
2 Family Takaful Plans
3 Family Takaful Practices: Certificate
Administration
4 Family Takaful Practices: Underwriting
5 Family Takaful Practices: Claims and Partial
Withdrawal
6 Key Consideration in Investment
7 Choice of Investment Vehicles
8 Introduction to Investment-Linked Takaful
9 Introduction to Investment-Linked Takaful
10 How Investment-Linked Takaful Plan Work?
11 Taxation and Law Covering Investment-Linked
Takaful Plan
12 Identifying and Establishing Customer Needs
13 Family Takaful Practices: Marketing and
Services, Ethics and Code of Conduct
No Topics
1 Family Takaful Preliminaries
2 Family Takaful Plans
3 Family Takaful Practices: Certificate
Administration
4 Family Takaful Practices: Underwriting
5 Family Takaful Practices: Claims and Partial
Withdrawal
6 Key Consideration in Investment
7 Choice of Investment Vehicles
8 Introduction to Investment-Linked Takaful
9 Introduction to Investment-Linked Takaful
10 How Investment-Linked Takaful Plan Work?
11 Taxation and Law Covering Investment-Linked
Takaful Plan
12 Identifying and Establishing Customer Needs
13 Family Takaful Practices: Marketing and
Services, Ethics and Code of Conduct
Family Takaful Preliminaries
Family Takaful is a takaful scheme that provides the participant with both a protection and long-term savings.
FAMILY TAKAFUL
CONTRIBUTION
Participant’s Risk Fund (PRF) Participants’ Investment Fund (PIF)
for savings and investment tabarru’ (donation)
Family Takaful Preliminaries
The profit from the investment will be treated as follows:
FAMILY TAKAFUL
Participants’ Investment Fund
for savings and investment
Under Muḍārabah Model Under Wakālah Model
Profit will be shared between the
participant and the Takaful
Operator according to a pre-
agreed ratio
Net profit (after deducting the
Wakālah fee) will be credited into the
participant’s PIF.
Family Takaful Preliminaries
Where the participant survives until maturity of the plan, the surplus from
the PRF will be treated as follows:
FAMILY TAKAFUL
Under Muḍārabah Model Under Wakālah Model
Surplus will be shared between the
participant and the Takaful Operator
according to a pre-agreed ratio.
The net surplus (after deducting
the Wakālah fee) will be credited
into the participant’s PIF
Participant’s Risk Fund
tabarru’ (donation)
Family Takaful Preliminaries
CHARACTERISTICS OF FAMILY TAKAFUL PLAN
CHARACTERISTIC DESCRIPTION
Long-Term Contracts with Usually Level
Contribution
These are long term contracts with
usually level contributions.
The contribution/premium is calculated
based on many factors:
Mortality
Expenses
Rate of investment returns
Tax.
These long-term contracts require the Operator to manage the fund to ensure
that sufficient reserves are maintained and available to pay any claim.
Family Takaful Preliminaries
CHARACTERISTICS OF FAMILY TAKAFUL PLAN
CHARACTERISTIC DESCRIPTION
Unilateral Contract A contract where both the Takaful Operator and
participants have certain rights and obligations.
As long as the participant continues paying the
contribution and does not breach Section 141 of the
IFSA 2013, (i.e. suppression of material facts)
the Takaful Operator does not have the right to cancel
the contract
Family Takaful Preliminaries
CHARACTERISTICS OF FAMILY TAKAFUL PLAN
CHARACTERISTIC DESCRIPTION
Permissible Takaful Interest (PTI) Permissible Takaful Interest must exist at the beginning
and at time of loss – otherwise, the Takaful affected is
void.
PTI exists in the following situations:-
Every person is considered to have an unlimited
interest in his own
A parent has an interest in the life of a child below the
age of majority
A creditor has an interest in the life of a debtor to the
extent of the debt
An employer has an interest in the lives of its personnel
A business partner has an interest in his other
partner(s), especially if there is an agreement to buy
out the share of a deceased partner.
Family Takaful Preliminaries
CHARACTERISTICS OF FAMILY TAKAFUL PLAN
CHARACTERISTIC DESCRIPTION
Termination of Contract with
Payment of A Claim The settlement of a claim (e.g death or total permanent
disability) will terminate the contract.
Risk To Be Covered Increases
with Time Under Family Takaful, mortality and morbidity risk
increases with age.
Family Takaful Preliminaries
RISKS COVERED BY FAMILY TAKAFUL PLAN
Risk of Premature Death
The financial impact from the
premature death of a breadwinner
can be long-lasting
A Family Takaful Plan is effective in
providing some measures of
financial security in such a
contingency
Risk of Disability and Poor Health
Medical costs can liquidate a person’s
entire savings over a long period.
A person stricken by disability or poor
health would NOT be able to earn the
same quantum he used to prior to his
disability or poor health.
Risk of Old Age/Longevity
Major risk associated with old age or longevity is the possibility of insufficient income to fund one’s post retirement life-style
Family Takaful Preliminaries
FAMILY TAKAFUL BENEFITS
BENEFITS
Pre-mature death
Total Takaful coverage plus
share of profits from
investments will be credited
to the Participant's
Investment Fund (PIF).
Maturity Benefit
Total accumulative fund of
Participant's Investment Fund
(PIF) plus Participant Risk Fund
(PRF) surplus (if any) will be paid
to the participant.
Surrender Value
Total accumulative fund of Participant's
Investment Fund (PIF) (if any) will be paid to
participant.
No Topics
1 Family Takaful Preliminaries
2 Family Takaful Plans
3 Family Takaful Practices: Certificate
Administration
4 Family Takaful Practices: Underwriting
5 Family Takaful Practices: Claims and Partial
Withdrawal
6 Key Consideration in Investment
7 Choice of Investment Vehicles
8 Introduction to Investment-Linked Takaful
9 Introduction to Investment-Linked Takaful
10 How Investment-Linked Takaful Plan Work?
11 Taxation and Law Covering Investment-Linked
Takaful Plan
12 Identifying and Establishing Customer Needs
13 Family Takaful Practices: Marketing and
Services, Ethics and Code of Conduct
Family Takaful Plans
INDIVIDUAL FAMILY TAKAFUL PLAN
PLAN DESCRIPTION & BENEFITS
SAVINGS TAKAFUL
PLAN
It comprises the elements of savings and returns on
investment with individual protection.
It is an investment type plan that participates in profits.
This plan is designed to optimize the returns on investment to
the participants.
It utilises two key elements to achieve the obligation under the
plan:
Level Term Cover
Investment Account.
EDUCATION PLAN • This plan provides protection and long-term savings (at maturity)
to finance a child’s higher education expenses.
• A payor benefit rider ensures the child is provided with financial
benefits in the event the payor suffer an event covered under the
plan.
INDIVIDUAL FAMILY TAKAFUL PLAN
PLAN DESCRIPTION & BENEFITS
MORTGAGE The Mortgage Reducing Term Takaful (MRTT) plan, is a
Sharī’ah-compliant single contribution plan.
In the event of Death or TPD the plan pays out an amount
covering the outstanding mortgage/home financing.
RIDERS Riders are supplementary benefits added onto basic Family
Takaful plans.
List of common types of Family Takaful riders:
Critical Illness coverage
Accidental Death and Disability Payor Benefit.
Waiver of Contributions.
Medical Coverage.
Hospitalisation Benefit.
Family Takaful Plans
INDIVIDUAL FAMILY TAKAFUL PLAN
PLAN DESCRIPTION & BENEFITS
MORTGAGE The Mortgage Reducing Term Takaful (MRTT) plan, is a
Sharī’ah-compliant single contribution plan.
In the event of Death or TPD the plan pays out an amount
covering the outstanding mortgage/home financing.
RIDERS Riders are supplementary benefits added onto basic Family
Takaful plans.
List of common types of Family Takaful riders:
Critical Illness coverage
Accidental Death and Disability Payor Benefit.
Waiver of Contributions.
Medical Coverage.
Hospitalisation Benefit.
Family Takaful Plans
INDIVIDUAL FAMILY TAKAFUL PLAN
PLAN DESCRIPTION & BENEFITS
MORTGAGE The Mortgage Reducing Term Takaful (MRTT) plan, is a
Sharī’ah-compliant single contribution plan.
In the event of Death or TPD the plan pays out an amount
covering the outstanding mortgage/home financing.
RIDERS Riders are supplementary benefits added onto basic Family
Takaful plans.
List of common types of Family Takaful riders:
Critical Illness coverage
Accidental Death and Disability Payor Benefit.
Waiver of Contributions.
Medical Coverage.
Hospitalisation Benefit.
Family Takaful Plans
GROUP FAMILY TAKAFUL PLAN
Main features
A minimum number of participants are required to qualify as a ‘group’ under these plans.
Participants and/or their beneficiaries will receive compensation arising from death or permanent
disability of participating members.
TYPE OF GROUP PLAN DESCRIPTION
EMPLOYEE BENEFITS
SCHEME This is a yearly renewable plan offered to groups of people under
one master certificate.
The plan offers following coverage:-
Personal Accident cover which provides benefits upon partial/total
and/or temporary/permanent disability due to accident.
Hospitalisation and Surgical benefits which cover in-patient and out-
patient medical expenses.
Term Takaful which provides benefits upon death and total
permanent disablement.
Family Takaful Plans
GROUP FAMILY TAKAFUL PLAN
TYPE OF GROUP FAMILY
PLAN
DESCRIPTION
Group Medical and Health
Plan This plan is participated by employers, where employees and
their families (depending on the plans) are covered in respect of
expenses incurred for surgical and hospitalization.
Employers participate in this scheme as a means to provide for
employees’ welfare and goodwill.
Group Retirement
Scheme This plan is designed to provide saving elements for retirement
purposes.
This plan is promoted on per unit basis based on the value set by
the Takaful Operator.
In the death or TPD, the Sum Covered plus the accumulated
amount (if any) in the PIF are payable to the rightful claimants.
Family Takaful Plans
GROUP FAMILY TAKAFUL PLAN
RIDERS UNDER EMPLOYEE BENEFITS SCHEME
A rider is a benefit added onto the basic certificate to confer additional benefits and
usually requires additional payment.
Operators offer a variety of riders for attachment to the basic certificate.
Examples are :
Critical illnesses riders
Major surgical and hospitalization benefits.
The rider overrides any conflict with the certificate. If there is a provision
in the rider that is different from the provision in the certificate, then the
rider prevails.
Family Takaful Plans
Family Takaful Plans
GROUP CREDIT TAKAFUL
Main features
This plan provides coverage to pay off outstanding financing facility/debt to any financial
institution in the event of the participant’s death (who is the applicant/borrower) or if the
participant becomes totally and permanently disabled.
Example : Personal financing and credit cardholders where the outstanding debt will be
settled by Takaful Operator in the event of death or TPD of the member.
IMPORTANCE OF FAMILY TAKAFUL PLANS
Family Takaful provides protection to the family by ensuring continuity of
income even after the death/disability/medical contingency of the
breadwinner.
Mortgage Takaful protects the interest of the financier and the home
owner during the period of financing
Family Takaful provides employees with various benefits for their
financial well-being under the group employee benefits plan
“Maqasid Sharī’ah”
Islam promotes the essence of peace, economic well-being and convenience, and
the development of mankind at all levels
Family Takaful Plans
No Topics
1 Family Takaful Preliminaries
2 Family Takaful Plans
3 Family Takaful Practices: Certificate
Administration
4 Family Takaful Practices: Underwriting
5 Family Takaful Practices: Claims and Partial
Withdrawal
6 Key Consideration in Investment
7 Choice of Investment Vehicles
8 Introduction to Investment-Linked Takaful
9 Introduction to Investment-Linked Takaful
10 How Investment-Linked Takaful Plan Work?
11 Taxation and Law Covering Investment-Linked
Takaful Plan
12 Identifying and Establishing Customer Needs
13 Family Takaful Practices: Marketing and
Services, Ethics and Code of Conduct
Family Takaful Practices: Certificate Administration
DESCRIPTION OF FAMILY TAKAFUL CERTIFICATES
Cover participants with:
Financial Protection
Long-Term Savings + Investment Returns
Difference between Certificate and Contract:
Certificate – the medium on which the agreement is written.
Contract – a legally binding agreement between the concerned parties
Family Takaful Practices: Certificate Administration
CERTIFICATE TRANSACTIONS
Replacement for a lost or misplaced certificate
Participant must submit:
letter of request
undertaking letter to indemnify Operator against any eventual
loss due to the issuance of a duplicate certificate
The replacement certificate would be stamped “Duplicate Certificate”, and becomes a valid legal document.
DUPLICATE CERTIFICATE
Family Takaful Practices: Certificate Administration
CERTIFICATE TRANSACTIONS
Assignment is the transfer of rights and liabilities by one person to another.
The assignee (person who takes over the assigned rights) will have the same
rights as those enjoyed by the assignor (who assigns the rights).
Assignment of a Family Takaful Certificate
Section 2 IFSA 2013
“Takaful Participant” as the person who has legal title to a Takaful certificate
including the assignee, if such certificate has been assigned.
EXPLANATION
Family Takaful Practices: Certificate Administration
Assignment
ConditionalAbsolute
Does not leave any rights with the assignor
except the Payment of contributions If the
participant choose to pay.
Give the assignor the right to revoke the
assignment:-
If assignee dies before benefits are due
If the participant survive until maturity
ASSIGNMENT OF A FAMILY TAKAFUL CERTIFICATE
Family Takaful Practices: Certificate Administration
ASSIGNMENT OF CLAIM AMOUNT
An assignment of certificate proceeds arises when the participant instructs the Takaful Operator to pay the certificate proceeds to a third party.
In such an assignment, the participant remains a party to the takaful contract and continues to assume liabilities under it even after the assignment of certificate proceeds.
All certificate proceeds are assignable unless the contract provides otherwise.
Participants who have attained the age of 18 years and above may nominate a person to receive the certificate benefits
Family Takaful Practices: Certificate Administration
CERTIFICATE ENDORSEMENT/ALTERATIONS
Family Takaful contracts are long-term contracts, as such circumstances may change
and alterations to the certificate may be needed.
Effected through endorsements
Endorsements at the Time of Issuance of
Certificate
those affecting the contribution, or its
frequency of payment
those affecting the sum covered, or its mode
of payment
those incorporating special benefits e.g.
options to convert the contracts into a different
type
Endorsements after Issuance of
Certificate
mode of contribution payment
alterations to the form of the contract
imposition or removal of extra
contributions
Family Takaful Practices: Certificate Administration
CERTIFICATE ALTERATIONS
For alterations, the participant must write to the Operator and the
alteration is endorsed onto the certificate document.
Common forms of alterations
change of address
change of name (same original applicant / participant
change in the mode of payment
change in the sum covered
change in beneficiary
change in the term of cover, e.g. change from ten years to five years
Family Takaful Practices: Certificate Administration
PRIVILEGES AND CONDITIONS
CLASSIFIED UNDER 3 GROUPS
Privileges
Adding to the benefits of the coverage
Restrictive Condition
Adding to the benefits of the coverage
Explaining the Nature of the Contract
Family Takaful Practices: Certificate Administration
PRIVILEGES AND CONDITIONS
PRIVILEGES & CONDITIONS EXPLANATION
Grace Period for Contribution
Payment
Duration : 30 days (or one calendar month)
The cover continues during the period
If the renewal contribution is not paid within
that period, the certificate ceases to have any
further cover, subject to any non-forfeiture
provisions, if applicable
Surrender Value Cash value is paid when the certificate is
surrendered or terminated before maturity.
The participant is paid all the accumulated
balance in his PIF
None will be paid out of the PRF (tabarru
fund).
Partial Withdrawal Withdrawal up to 50% of the balance in the PA
A small one-time fee to administer the
transaction may be charged
No interest is charged
Participant may or may not pay back the
amount
Family Takaful Practices: Certificate Administration
PRIVILEGES &
CONDITIONS
EXPLANATION
Non-Payment
Conditions
Comes into play when the certificate has a cash value.
It is a privilege for the participant who overlooks the payment of his
contribution or is temporarily unable to meet it
Non-payment provisions:
Automatic Advance from the PIF
Paid-Up Takaful
Extended Term Takaful
Suicide Clause If a participant commits suicide within a stated period of time, the
certificate becomes void.
The Takaful operator is not liable to pay the claim EXCEPT to
refund all contributions paid from the Participant’s Investment
Fund (PIF) subject to the terms and conditions of the Takaful
operator
• Family Takaful Practices: Certificate Administration
PRIVILEGES &
CONDITIONS
EXPLANATION
Cooling-Off Period or
Free-Look Period
Participants are allowed a 15-days period (from the date they
receive the certificate ) to decide if the certificate issued fulfills
their requirements.
They are free to return the certificate to the Takaful operator for a
full refund if they are not satisfied with the certificate coverage.
The certificate becomes void and the takaful operator is not liable
thereon
All contributions paid from PA are refunded
Misrepresentation of
Age
Schedule 9 (13) of Section 141 IFSA 2013:
No Family Takaful certificate shall be called in question by the
Takaful Operator on the grounds of a misstatement of the age of
the participant.
Incontestability Clause A certificate issued based on a misleading statement made in
the proposal form shall not be called in question unless the
Takaful Operator can show that such statement was made with
fraudulent intention
Family Takaful Practices: Certificate Administration
Replacement of Family Takaful Certificates
lapsed or surrendered
Replacement is deemed to have occurred if within 12 months before or after a
new certificate is effected
An existing Family Takaful certificate is
changed or modified into paid-
up Takaful
continued as extended Term
Takaful or automatic advance
from participant’s account, or
under another form of non-
payment provisions
changed or modified in relation to:
Payment of contribution
Sum covered
Term of the certificate
Family Takaful Practices: Certificate Administration
Measures to Detect Replacement of Certificates
an effective control mechanism,
preferably automated to detect
internal replacement of certificates
a question in the proposal form
whether the proposal is to replace
or intended to replace any existing
certificate with the current or any
other Takaful Operator
Operator to follow-up , advise or write to the certificate owners on the
disadvantages of replacing a certificate and the alternatives available
This should be done within 7 days from the date a replacement of
certificate is detected
BNM has put in place the following requirements to
detect and curb replacements
Family Takaful Practices: Certificate Administration
EXCLUSIONS
Death, disablement or medical expenses caused by:
a. war, warlike operations, strike, riot, civil commotion
b. insanity, suicide or any attempt thereat
c. venereal disease, infection or parasites
d. intoxication by alcohol or drugs
e. childbirth, miscarriage or pregnancy
Death, disablement or medical expenses sustained by the participant:
a. while travelling in an aircraft as a member of the crew
b. while engaging in motor cycling, hunting, mountaineering, polo playing steeplechasing,
water-ski jumping, underwater activities, or any other extreme sports
c. while committing or attempting to commit any unlawful act.
COMMON EXCLUSIONS
Family Takaful Practices: Certificate Administration
CERTIFICATE SERVICING
Termination of Coverage
Death of participant
Expiry of coverage
Total benefits paid under the certificate
exceeds the maximum limits specified
in the SchedulTermination of Coverage
Family Takaful Practices: Certificate Administration
CERTIFICATE SERVICING
Maturity Claims
Participant is the person covered:-
proof of age,
proof of survival
discharge voucher completed by
the participant
the original certificate
document/contract.
Participant is not the person covered:-
deed of assignment or title document
statement that the person covered is
alive and is unable/ unavailable to sign
the survival certificate
Maturity amount becomes payable upon survival beyond certificate term
following are usually required in settling maturity claims
No Topics
1 Family Takaful Preliminaries
2 Family Takaful Plans
3 Family Takaful Practices: Certificate
Administration
4 Family Takaful Practices: Underwriting
5 Family Takaful Practices: Claims and Partial
Withdrawal
6 Key Consideration in Investment
7 Choice of Investment Vehicles
8 Introduction to Investment-Linked Takaful
9 Introduction to Investment-Linked Takaful
10 How Investment-Linked Takaful Plan Work?
11 Taxation and Law Covering Investment-Linked
Takaful Plan
12 Identifying and Establishing Customer Needs
13 Family Takaful Practices: Marketing and
Services, Ethics and Code of Conduct
303
We have discussed about underwriting in the following topics under Chapter
A11 Medical and Health Takaful Underwriting.
The Purpose of Underwriting
Anti-Selection
Adequacy of Contribution
Sources of Underwriting Information
Underwriting Process
Issuance of Certificate
Candidates are strongly recommended to study Chapter A11 to understand
the Family Takaful underwriting.
Family Takaful Practices: Certificate Administration
No Topics
1 Family Takaful Preliminaries
2 Family Takaful Plans
3 Family Takaful Practices: Certificate
Administration
4 Family Takaful Practices: Underwriting
5 Family Takaful Practices: Claims and Partial
Withdrawal
6 Key Consideration in Investment
7 Choice of Investment Vehicles
8 Introduction to Investment-Linked Takaful
9 Introduction to Investment-Linked Takaful
10 How Investment-Linked Takaful Plan Work?
11 Taxation and Law Covering Investment-Linked
Takaful Plan
12 Identifying and Establishing Customer Needs
13 Family Takaful Practices: Marketing and
Services, Ethics and Code of Conduct
Family Takaful Practices: Claims and Partial Withdrawal
Termination of a Family Takaful contract
The termination of a Family Takaful contract is usually marked by
the settlement of a claim.
A claim can arise under any one of the following situations:-
death of the participant
maturity of the takaful certificate
sickness or disability benefit claims
claims arising under supplementary contracts.
CLAIMS AND PARTIAL WITHDRAWAL
Participant’s name and identity card number
CLAIMS AND PARTIAL WITHDRAWAL
NOTIFICATION OF CLAIMS
On the happening of a covered event, the beneficiary or claimant should notify
the takaful operator and provide all of the following details
Certificate
number and
participant’s
address
Date and cause
of death, injury
or sickness, as
the case may be
Family Takaful Practices: Claims and Partial Withdrawal
The operator advises the beneficiary or claimant on the procedures to be followed andthe documentation needed. to provide proof of such event
For Muslim participants their Takaful certificates (death claim) will be distributed to therightful heirs in accordance to Fara’id Law
For Muslims, the nomination of a person in a Takaful certificate creates a trustee whoreceives the proceeds and subsequently distributes it to the rightful heirs.
CLAIMS AND PARTIAL WITHDRAWAL
NOTIFICATION OF CLAIMS
Family Takaful Practices: Claims and Partial Withdrawal
The claimant or beneficiary has to provide the takaful operator with documentaryevidence which establishes the death of the participant
The Operator will accept any one of the following documents as proof of death
Death Certificate Coroner’s Report
a certificate evidencing the death of service
personnel and war death
a certificate showing that death has occurred
at sea
order pronouncing a statutory presumption of
death, for cases where the participant has
gone missing more than 6 years
medical certificate by last medical attendant
CLAIMS AND PARTIAL WITHDRAWAL
DEATH CLAIMS
Family Takaful Practices: Claims and Partial Withdrawal
The operator would also request for proof of age of the deceased participant, if this was not done at the commencement of the contract.
The takaful operator has to ensure that the claim proceeds on a death are paid to the person entitled to receive them.
Schedule 10 of Section 142 IFSA 2013, specifically mentions that such benefits payment can be made by the Takaful Operator to the lawful executor or administrator of the deceased estate.
CLAIMS AND PARTIAL WITHDRAWAL
DEATH CLAIMS
Family Takaful Practices: Claims and Partial Withdrawal
TOTAL PERMANENT DISABILITY CLAIMS
TWO TYPES
Total permanent disability claim
due to natural causes or illness
Total permanent disability claim
due to accidental causes
Family Takaful Practices: Claims and Partial Withdrawal
Total permanent disability claim
due to accidental causes
TOTAL PERMANENT DISABILITY CLAIMS
Documents Required
medical certification to be completed
by the attending doctor after the
participant’s disability;
Certified true copy of the participant’s
IC;
Completed claim form
Total permanent disability claim
due to natural causes or illness
Documents Required
medical certification to be completed
by the attending doctor after the
participant’s accidental disability;
certified true copy of the participant’s
identification card;
completed claim form; and
certified true copy of the police report.
Family Takaful Practices: Claims and Partial Withdrawal
The maturity amount is payable a participant survives the term of his certificate
The Operator will inform the certificate holder of the impending maturity and request the participant to comply with the claim procedures.
The Takaful Operator would forward the following for completion:
an identity form,
the survival form
a discharge voucher together with the original certificate contract.
MATURITY CLAIMS
Family Takaful Practices: Claims and Partial Withdrawal
TWO SITUATIONS
When the the participant IS the person
covered
When the participant is NOT the
person covered
MATURITY CLAIMS
Documents Required
proof of age
proof of survival
discharge voucher completed by the
participant
the original certificate
Documents Required
a deed of assignment or other title
document
a statement that the person covered
is alive and is unable or not available to
sign the survival certificate.
Family Takaful Practices: Claims and Partial Withdrawal
Participants can make partial withdrawal on their certificates, subject to certain terms
and conditions.
Partial withdrawal is made on a certain percentage of the Participant’s Investment Fund
(PIF)
During a surrender of the certificate, the participant shall be paid the entire amount
accumulated in the Participants’ Account, but not the Participant’s Risk Fund (PRF).
PARTIAL WITHDRAWAL
Family Takaful Practices: Claims and Partial Withdrawal
For personal accident certificates, the principle of proximate cause applies (as there
may be more than one condition that can operate leading to a claim).
If the Takaful Operator opines the claim resulted from an excluded peril, then the
Operator has the responsibility to prove it.
If the Takaful Operator is satisfied as to the validity of the claim Operator will then pay
the claim
OTHER CLAIMS
Family Takaful Practices: Claims and Partial Withdrawal
Every Takaful Operator shall maintain an up-to-date register of all Takaful claims
immediately upon becoming aware of it.
The Takaful Operator will be liable for any claims as long as the claims have not been
settled.
The claims register serves as an official record of claims notified to the Takaful Operator.
The claims register could be kept in either a card form or ledger sheet form or even in
computer.
CLAIMS REGISTER
Family Takaful Practices: Claims and Partial Withdrawal
No Topics
1 Family Takaful Preliminaries
2 Family Takaful Plans
3 Family Takaful Practices: Certificate
Administration
4 Family Takaful Practices: Underwriting
5 Family Takaful Practices: Claims and Partial
Withdrawal
6 Key Consideration in Investment
7 Choice of Investment Vehicles
8 Introduction to Investment-Linked Takaful
9 Introduction to Investment-Linked Takaful
10 How Investment-Linked Takaful Plan Work?
11 Taxation and Law Covering Investment-Linked
Takaful Plan
12 Identifying and Establishing Customer Needs
13 Family Takaful Practices: Marketing and
Services, Ethics and Code of Conduct
Key Consideration in Investment
Prospective participant has to consider various factors before making the decision to
participate in an investment linked Takaful plan
KEY CONSIDERATIONS IN INVESTMENT
Investment Objectives
Availability of Funds
Risk o Security
Investment Horizon
Taxation Treatment
Performance of the
Investment
Diversification
KEY CONSIDERATIONS IN INVESTMENT
objectives help the investor choose
appropriate investment
instruments and asset classes to
achieve desired yields.
INVESTMENT OBJECTIVES WHY INVESTMENT OBJECTIVES ARE IMPORTANT?
objectives change according to
one’s situation over time.
Key Consideration in Investment
KEY CONSIDERATIONS IN INVESTMENT
COMMON INVESTMENT OBJECTIVES
Income Focus on current income while at the same time
preserving the capita
Balanced Focus on income and long term growth through
diversification
Growth &
Income
Balance between capital appreciation and current
income
Long Term
Growth
Focus is long term capital appreciation
Speculation To maximize total return involving a higher degree of
risk
Key Consideration in Investment
KEY CONSIDERATIONS IN INVESTMENT
AVAILABILITY OF FUNDS
INCOME
Wages, salaries, profits,
interest payments, rents and
etc
INVESTMENT “BILL”
put money aside month for
investment
EXTRA MONEY
Monetary gifts, money for
working overtime, cash
bonuses and incentive
payments
Key Consideration in Investment
Customer must be aware of their personal risk tolerance when choosing
investments for their portfolio.
Customer must be aware of the risk-return trade off (high risk:high
returns)
The goal instead is to find an appropriate balance for the particular
individual
KEY CONSIDERATIONS IN INVESTMENT
RISK OR SECURITY
Key Consideration in Investment
KEY CONSIDERATIONS IN INVESTMENT
It refers to the duration an investor expects to hold a security or portfolio until he needs
to sell his investment
It is used to determine the investor's income needs and desired risk exposure
INVESTMENT HORIZON
As investment horizons increase in
length, equities represent a higher
risk-adjusted return than fixed-
income securities and cash.
Across shorter investment
horizons, equities become the
riskier asset class because they
carry higher levels of volatility.
Key Consideration in Investment
KEY CONSIDERATIONS IN INVESTMENT
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Investment Portfolios Horizon
Key Consideration in Investment
KEY CONSIDERATIONS IN INVESTMENT
SHORT TERM
Less than 3 years
These funds are kept in
extremely low-risk
investments.
LONG TERM
10-years plus time horizon
A portfolio of stock mutual funds or ETFs, exchange traded funds, contains a
blue chip, large cap fund, a small or medium cap fund, and an international fund.
MEDIUM TERM
3-10 years range
Low-risk, intermediate-term
bonds or a well-diversified mix
of stocks and bonds weighted
heavily toward low-risk bonds
INVESTMENT HORIZON
Key Consideration in Investment
Different type of investment will attract different taxation treatment
Customer should know the tax treatment for different investment before
deciding to invest
Taxation has an effect on the net return rate
TAXATION TREATMENT
KEY CONSIDERATIONS IN INVESTMENT
Key Consideration in Investment
Investment performance is the return on an investment portfolio.
It is measured over a specific period of time and in a specific currencyIt is the return of an investment portfolio
KEY CONSIDERATIONS IN INVESTMENT
PERFORMANCE OF THE INVESTMENT
Key Consideration in Investment
KEY CONSIDERATIONS IN INVESTMENT
PERFORMANCE OF THE INVESTMENT
Investors often distinguish different types of return
Net versus Gross Return The return net of all fees, expenses, and
taxes, whereas the gross return is the return
before all fees, expenses, and taxes.
Total Return versus Price Return Total return takes into account income
(profit and dividend)
Price returns only considers capital
appreciation
Money-Weighted Return versus Time-
Weighted Return
Total return takes into account income
(profit and dividend)
Time weighted into account capital
appreciation only
Key Consideration in Investment
Depends on the following factors:
The country economy
Regional and global economy
The competencies and capabilities of the fund manager
The invested company’s level of costs.
Past performance
History of the invested company
Life cycle of the investment
KEY CONSIDERATIONS IN INVESTMENT
PERFORMANCE OF THE INVESTMENT
Key Consideration in Investment
Asset classes
Diversify asset classes share, sukuk and cash are not correlated with each other
Industry
Adequate representation from different industries.
Country
too much equity in home country which reduces diversification.
KEY CONSIDERATIONS IN INVESTMENT
DIVERSIFICATION
PROCESS OF INVESTING OVER ASSET CLASSES:
(‘Don’t put all the eggs in one basket’)
Key Consideration in Investment
No Topics
1 Family Takaful Preliminaries
2 Family Takaful Plans
3 Family Takaful Practices: Certificate
Administration
4 Family Takaful Practices: Underwriting
5 Family Takaful Practices: Claims and Partial
Withdrawal
6 Key Consideration in Investment
7 Choice of Investment Vehicles
8 Introduction to Investment-Linked Takaful
9 Introduction to Investment-Linked Takaful
10 How Investment-Linked Takaful Plan Work?
11 Taxation and Law Covering Investment-Linked
Takaful Plan
12 Identifying and Establishing Customer Needs
13 Family Takaful Practices: Marketing and
Services, Ethics and Code of Conduct
Choice of Investment Vehicles
Most liquid instrument
Very minimal risk or no risk of losing the principal amount
Low return or low yield.
INVESTMENT CHOICES
CASH DEPOSIT
Bank Accounts
Savings AccountGeneral Investment Account (GIA) Current Account
Government Investment Issue
1. CASH DEPOSIT Liquid instruments with minimal or no risk to the principal
INVESTMENT CHOICES
CASH DEPOSIT
Bank Accounts
Savings AccountGeneral
Investment
Account
(GIA)
Current Account
Government Investment Issue
1. CASH DEPOSIT Liquid instruments with minimal or no risk to the principal
Special
Investment
Account (SIA)
Foreign Currency
Deposit
Gold
Account
Choice of Investment Vehicles
Choice of Investment Vehicles
INVESTMENT CHOICES
Government Investment Issue (GII)
It is the Islamic version of marketable debt instrument issued by the
Government of Malaysia
It aims to raise funds from the domestic capital market to finance the
Government's development expenditure and working capital.
Bank Negara Malaysia facilitates its issuance
Islamic financial institutions such as Islamic banks and Takaful Operators use
this to meet their statutory liquidity requirements.
It is regarded as non-risk unless there is political instability in the country
It is also known as Unrestricted Investment Account.
It provides full discretion to the bank to utilize/invest the money in an income
producing assets without restriction.
Profit is payable on every interim profit payment date/at maturity (where
applicable).
The amount of actual profit will only be known on the maturity date based on
prevailing gross return for the contracted profit sharing ratio
Government Investment Account (GIA
INVESTMENT CHOICESIslamic Bank Accounts
Choice of Investment Vehicles
It refers to profit sharing investment that meets specific investment mandate by
the account holder to the Islamic bank in utilizing the SIA funds to finance and/or
invest in specific income producing assets.
Special Investment Account (SIA
Foreign Currency Deposit
Foreign currency based account in line with Sharī’ah .
INVESTMENT CHOICESIslamic Bank Accounts
Choice of Investment Vehicles
The account allows the accountholder to conveniently invest and trade in gold
commodity. Accountholder can invest without holding the physical commodity.
Gold Account
Current Account
It is a “non-profit” bearing bank account and allows the accountholders to write
cheque against available money in the account
INVESTMENT CHOICESIslamic Bank Accounts
Choice of Investment Vehicles
Savings Account is a form of bank’s deposit which allows customers to deposit
and withdraw their money.
There is no maturity date imposed on the deposit.
It can be opened by either individual or company.
Saving Account
INVESTMENT CHOICESIslamic Bank Accounts
Choice of Investment Vehicles
Tradable certificates of trust for the ownership of an asset, or certificates of usufruct
It is commonly refers to the Islamic equivalent of bonds.
It differs from conventional bonds in that they do not pay interest
It can be issued by governments, and companies.
Corporate sukuk provides higher returns than government sukuk.
INVESTMENT CHOICES
2. SUKUK
Choice of Investment Vehicles
INVESTMENT CHOICES
2. SUKUK
Three main clusters of Sharī’ah contract used for sukuk
Sale based sukuk Bay’ Bithaman Ājil
Murābaḥah
Bay’Al-Salam
Istisna’
Lease based sukuk Ijārah
Equity based sukuk Mushārakah
Muḍārabah
Wakālah
Choice of Investment Vehicles
Shares are investments in individual companies.
They have a nominal value for example RM1.00 (when multiplied by the total
number of shares issued forms the issued share capital).
The market price will rise or fall according to supply and demand.
Through stocks and shares, investors can create wealth in 3 different ways
3. SHARES AND INVESTMENT
To receive an income from them in the form of dividend
To hopefully see a growth in their value and sell them at a profit
A combination of the above
Choice of Investment Vehicles
Represents ownership rights to a corporation
Provide many perks; such as voting rights and dividend payments
Ordinary shareholders are last in line for dividends behind all debtors and
preferred shareholders
SHARES AND INVESTMENT
ORDINARY SHARES
Advantage
Right to vote and elect board of
directors
Disadvantage
Right to vote and elect board
of directors
Choice of Investment Vehicles
Give the holder part ownership of a company
Pays fixed dividends - before payments to owners of ordinary shares
Advantage – priority in distribution of income
Disadvantage - No rights to vote and elect board of directors
SHARES AND INVESTMENT
PREFERRED SHARES
Choice of Investment Vehicles
“any arrangement made for the purpose, or having the effect, of providing
facilities for the participation of persons as beneficiaries under a trust in
profits or income arising from the acquisition, holding, management or
disposal of:
Securities
futures contracts
any other property
4. UNIT TRUST
INVESTMENT CHOICES
DEFINITION Securities Commission Act 1993
Choice of Investment Vehicles
Referred to as ‘collective’ or ‘pooled investment’
Comprises of different type of investment vehicles chosen by fund managers
Islamic Unit Trust invest in Syariah compliance securities
Conforms to the principles of Bay’ Al-Naqdi (buy and sell on cash basis)
Fund manager receives fee (Al-Ujrah) for managing the fund
Main reason for investing in funds:
Help reduce an investors overall level of risk
Can lower the cost of building a diversified portfolio
Reduce the need to select and manage investments
4. UNIT TRUST
INVESTMENT CHOICES
Choice of Investment Vehicles
Help reduce an
investors overall level of
risk
4. UNIT TRUST
INVESTMENT CHOICES
Main reason for investing in unit trust
Can lower the cost of
building a diversified
portfolio
Reduce the need to
select and manage
investments
Choice of Investment Vehicles
ADVANTAGES
Fund is managed by specialist/professionals
Investors have the flexibility to choose from many trust funds in the market
Flexibility to choose from many unit trust funds in the market
Diversification of fund and risk. Reduced transaction costs.
DISADVANTAGES
There is cost over and above those investors compare to investing directly
4. UNIT TRUST
INVESTMENT CHOICES
Choice of Investment Vehicles
Involves the purchase, ownership, management, rental, and profit through selling or
rental of real estate
It is an asset form with limited liquidity relative to other investment
Capital intensive and highly cash flow dependent
I-REIT (Islamic Real Estate Investment Trust)
Collective Sharī’ah compliant Investment scheme in real estate
It uses lease financing (ijarah) in lieu of an outright purchase of property.
It invests primarily in physical real estate, but it may also hold other kind
of investment such as sukuk, Sharī’ah-compliant securities etc.
I-REITs can be publicly or privately held.
5. REAL ESTATE
INVESTMENT CHOICES
Choice of Investment Vehicles
5. REAL ESTATE
ADVANTAGES
Can provide a steady income for a long period
Investor can use a lot of leverage to own properties
Real estate has an intrinsic value
DISADVANTAGES
Failure to pay instalment causes the loss of property and damage the credit
rating
Tenant dependent; failure to pay rental will results in a big loss to owner
Cost of maintenance and repair of the properties
INVESTMENT CHOICES
Choice of Investment Vehicles
A type of mutual fund that guarantees an investor at least the initial investment,
plus any capital gains, if it is held for the contractual term.
6. Capital Protected Fund
Two main types
INVESTMENT CHOICES
Passive Type Products
Bulk of the amount invested is
used to buy low risk assets
The remainder is invested to
buy options for potential
upside gains
Active Type Products
Similar to balanced products offered in
normal investment products.
Has a guarantee that the eventual return will
not be negative.
The guarantee must come from a third party
- not the issuer as required by Sharī’ah
Choice of Investment Vehicles
Funds that have direct holdings in commodities which comply with Shariah principles.
There are several requirements that must be met to comply with Shariah principles.
The commodity must be owned by the seller at the time of sale
Short selling is not permitted
Forward sales are allowed under bai’ salam and bai’ istisna
The commodity traded must be halal
The seller must have physical possession of the commodity to be sold.
The price of the commodity must be fixed and known to the parties involved as any
uncertainty will renders the sale invalid.
7. Islamic Commodity Funds
INVESTMENT CHOICES
Choice of Investment Vehicles
7. Islamic Commodity Funds
INVESTMENT CHOICES
ADVATANGES DISADVANTAGES
Good diversification strategy for
people with equities and sukuk
portfolios
Hedging against rising
Commodities market is often unstable, and
price swings can fluctuate from extreme highs
to extreme lows
Fees paid to these types of funds can also be
high.
Choice of Investment Vehicles
No Topics
1 Family Takaful Preliminaries
2 Family Takaful Plans
3 Family Takaful Practices: Certificate
Administration
4 Family Takaful Practices: Underwriting
5 Family Takaful Practices: Claims and Partial
Withdrawal
6 Key Consideration in Investment
7 Choice of Investment Vehicles
8 Introduction to Investment-Linked Takaful
9 Introduction to Investment-Linked Takaful
10 How Investment-Linked Takaful Plan Work?
11 Taxation and Law Covering Investment-Linked
Takaful Plan
12 Identifying and Establishing Customer Needs
13 Family Takaful Practices: Marketing and
Services, Ethics and Code of Conduct
Introduction to Investment-Linked Takaful
INVESTMENT-LINKED TAKAFUL
A Takaful cover
Investment in Sharī’ah-approved fundsdeath and disability benefits
+
A Family Takaful Plan that combines investment and Takaful cover.
INVESTMENT-LINKED TAKAFUL
A Takaful cover
Investment in Sharī’ah-approved fundsdeath and disability benefits +
Shari’ah Compliant funds
Growth fund
Balanced fund
Income fund
Cash fund
Sukuk fund
Introduction to Investment-Linked Takaful
1. Single Contribution Investment-Linked Plan
Feature One single lump-sum payment
Sum Covered Usually a percentage of the single contribution
(usually 125% contribution) subject to a
minimum amount (RM5,000).
For sub-standard live & older age Minimum
RM5,000 atau 105% of the single contribution,
whichever is higher21 March
Death Benefit Sum covered or the value of investment-linked
units, whichever is higher.
TYPES OF INVESTMENT-LINKED TAKAFUL PLAN
Introduction to Investment-Linked Takaful
2. Regular Contribution Investment-linked Plan
Feature Investor has choice of paying the contribution
on regular basis (Monthly, quarterly, half-yearly
or yearly )
Sum Covered Usually a multiple of the annual contribution.
Minimum Sum Covered Multiplier (SCM) for
regular contribution plan based on individual
Takaful Operator practise
Death Benefit Sum covered plus the value of investment-
linked units
TYPES OF INVESTMENT-LINKED TAKAFUL PLAN
Introduction to Investment-Linked Takaful
EXAMPLES
Investment-Linked Individual
Retirement Plan
Investment-Linked Critical
Ilness Plan
Investment-Linked Education
Plan
Provides retirement income
for life with the freedom to
maximize investment returns.
It normally requires high
allocation from the
contribution to accumulate
sufficient fund until the
retirement age
Provides a lump sum
amount if the certificate
owner contracted
anyone of the critical
illness such as heart
attack, stroke, coronary
bypass, renal failure,
etc.
Provides an sum of money
when the child reaches the
age for entry into college
(18 years and above).
The child is the life
covered, while the
parent/legal guardian is
the certificate owner.
INVESTMENT-LINKED TAKAFUL PLAN
Introduction to Investment-Linked Takaful
CHARACTERISTICS OF INVESTMENT-LINKED TAKAFUL PLAN
ILTP can be used for multiple purposes (as an investment, regular saving,
total permanent disability, death or health coverage)
ILTP’s exposure towards equity investment is higher compared to the
traditional Family Takaful
Investment risk is borne by the certificate owner
Net Asset Value of the fund is subject to the performance of the investment
Protection cost that depend on the age and level of protection is paid by
cancelling the units in the fund.
Cash Value is the unit value apportioned to the certificate owner calculated
on bid price.
Introduction to Investment-Linked Takaful
Feature Description
1. Flexibility to choose the
level of protection and
investment
Participant can choose the sum covered and
investment ratio in the annual contribution.
2. Option to vary the
amount of contribution
according to changing
financial circumstances
Flexibility to increase the investment portfolio
through top-ups
3. Option to switch current
investment fund to other
types of investment funds
Participant can switch his investment from a
sub-fund to another sub-fund, within the same
umbrella fund.
UNIQUE FEATURES OF INVESTMENT-LINKED TAKAFUL
Introduction to Investment-Linked Takaful
Feature Description
4. Option to redeem part of
investment-linked units at
any point of time
Participant may make withdrawal from the
fund, retaining only the stipulated minimum
amount.
5. Freedom choose from a
variety of investment funds
(equities, sukuk or other
financial instruments) to
invest in
Investment-Linked Takaful offers a complete
selection of high, medium and low risk
investment options under the same plan.
Participant can choose an appropriate option
according to risk taking appetite
Opportunity to switch between fund options
without any additional expense for specified
number of switches.
UNIQUE FEATURES OF INVESTMENT-LINKED TAKAFUL
Introduction to Investment-Linked Takaful
COMPARISON BETWEEN INVESTMENT-LINKED
TAKAFUL VERSUS ORDINARY FAMILY TAKAFUL PLAN
Characteristic Investment-Linked Takaful Ordinary Family
Participant’s
Investment Fund
The PIF is maintained in the form
of units.
The PIF is maintained in the form of
currency value.
Investment options The participant may select funds of
his choice in line with his
investment strategy
Investments are at full discretion of the
Takaful Operator
Investment returns
and risks
The investment risk is higher and
borne solely by the participants as
the PIF values vary according to
the values of the investment funds.
The returns depend on the Takaful
operator’s overall investment
performance.
Takaful contributions The participants are allowed to
change contribution payments, to
take contribution holidays and to
add contribution top-ups
Fixed and usually level throughout the
period of Takaful.
Introduction to Investment-Linked Takaful
363
COMPARISON BETWEEN INVESTMENT-LINKED TAKAFUL
VERSUS ORDINARY FAMILY TAKAFUL PLAN
Characteristic Investment-Linked
Takaful
Ordinary Family
Fees and charges All fees and charges are
fully disclosed to the
participants.
The Takaful operator may
vary the charges according
to the experience with what
has been assumed.
Fees and charges are fixed
throughout the period of Takaful
Death benefit Variable, based on
performance of the
investment account.
There is a minimum death
benefit payable upon the
death of the life covered
Fixed and level
Introduction to Investment-Linked Takaful
COMPARISON BETWEEN INVESTMENT-LINKED TAKAFUL
VERSUS ORDINARY FAMILY TAKAFUL PLAN
Characteristic Investment-Linked Takaful Ordinary Family
Death benefit options Two options are available.
Option 1 - PIF values + Sum
Participated
Option 2 - PIF values or Sum
Participated, whichever is
higher. .
No options available
Cash value Cash value depends on the
number of units in the PIF and
the prevailing unit price
Depends on the savings accumulated in
the PIF inclusive of investments
Partial withdrawal Two options available:
by amount
by number of units
Some products allow partial
withdrawal.
Withdrawal is made by
percentage/amount
Introduction to Investment-Linked Takaful
COMPARISON BETWEEN INVESTMENT-LINKED TAKAFUL
VERSUS ORDINARY FAMILY TAKAFUL PLAN
Characteristic Investment-Linked
Takaful
Ordinary Family
Contribution top-
ups
Available on a regular basis
as well as single top-up
Not available
Lapse risk Potential risk of lapse if the
PIF value is insufficient to
pay for the tabarru’ (risk
charges) even if the
participant pays the regular
contributions on schedule.
If the contributions are paid on
schedule, the certificate will not
lapse
Introduction to Investment-Linked Takaful
BENEFITS
Diversification of Fund
Diversification of Risk
Professional Management
Dollar Cost Averaging
Reduced Transaction
Costs
Liquidity Various Services
Wide Investment Objectives
Switching
Top Up Option
Fund Price in Media
Introduction to Investment-Linked Takaful
MARKET RISK
It arises from factors that affect the entire marketplace (changes in
regulations, politics, technology and the economy).
Market risk can be mitigated through diversification of the fund’s investments
RISK OF INVESTMENT
Introduction to Investment-Linked Takaful
RISK OF INVESTMENT
LIQUIDITY RISK
Risk that the security / instrument invested in, cannot be readily sold and
converted into cash.
This can occur when trading volume for the security is low and/or when there
is a lack of demand for the security.
Managing liquidity risk requires use of liquidity or volume-traded analysis on
primary and secondary markets for all security types.
Introduction to Investment-Linked Takaful
PROFIT RATE
This risk arises from the potential fluctuation of values of profit-bearing assets,
such as a financing or a sukuk
This risk can be reduced by diversifying the duration of the Islamic income
investments held at a given time
CREDIT/DEFAULT
It is the risk of loss from non-repayment of financing or other line of credit (either
the principal or profit or both)
Default events include delay in repayments, restructuring of borrower repayments,
and bankruptcy
The risk is reduced by investing in high quality
RISK OF INVESTMENT
Introduction to Investment-Linked Takaful
INVESTMENT RISK
Associated with investing in a particular asset which different level of risks.
The value of an investment depends on its growth and earnings potential,
sound management, and other factors.
Can be minimized by diversifying a fund’s portfolio.
RISK OF INVESTMENT
Introduction to Investment-Linked Takaful
RISK OF RECLASSIFICATION OF SHARIAH STATUS
Risk that arises from potential revision on the status of the currently held
Shariah compliant securities
Can be mitigated by conducting periodic review by Shariah Compliance Dept
and Shariah Committee of Takaful Operator’s
NON COMPLIANCE RISK
Non-compliance with the provisions of the deeds, prospectus, guidelines,
internal policies, and relevant laws
Can be mitigated through internal control and compliance monitoring
RISK OF INVESTMENT
Introduction to Investment-Linked Takaful
CURRENCY RISK
Adverse movements in currency exchange rates can affect the return and cause a
loss of capital when investing in non-ringgit denominated unit trust funds.
To mitigate, use currency hedging and limit investments to a few countries
COUNTRY RISK
There are risks specific to a country such as economic fundamentals, social and
political stability, currency movements, foreign investment policies
Can be mitigated through research on their market, economy, politics, social
conditions, etc
RISK OF INVESTMENT
Introduction to Investment-Linked Takaful
No Topics
1 Family Takaful Preliminaries
2 Family Takaful Plans
3 Family Takaful Practices: Certificate
Administration
4 Family Takaful Practices: Underwriting
5 Family Takaful Practices: Claims and Partial
Withdrawal
6 Key Consideration in Investment
7 Choice of Investment Vehicles
8 Introduction to Investment-Linked Takaful
9 Structure of Investment-Linked Takaful
10 How Investment-Linked Takaful Plan Work?
11 Taxation and Law Covering Investment-Linked
Takaful Plan
12 Identifying and Establishing Customer Needs
13 Family Takaful Practices: Marketing and
Services, Ethics and Code of Conduct
Introduction to Investment-Linked Takaful
Distribution Units
investment income is utilized to
purchase additional units.
New units are distributed to the
certificate owners.
Certificate owners will have
more units but the net asset
value will remain unchanged.
STRUCTURE OF INVESTMENT LINKED TAKAFUL
Contribution paid by the participant can be structured into two
Accumulation Units
Investment return is retained
within the fund
Net asset value of the fund
will increase over long term
Participants invest in funds depending on their risk appetite.
Participant buys units in a fund.
The value of the units is linked to the performance of the underlying
investments of the fund which can fluctuate.
Investment funds behave in different ways and can be grouped into categories
for example, income, balanced, growth etc.
Participants select investment fund that reflects their risk apetite.
TYPES OF INVESTMENT-LINKED FUNDS
STRUCTURE OF INVESTMENT LINKED TAKAFUL
Introduction to Investment-Linked Takaful
TYPES OF INVESTMENT-LINKED FUNDS CASH FUND
Objective To provide investors with a regular income
stream and high level of liquidity to meet cash
flow requirements preserving the capital
Investment Strategy Investments in Islamic money market instruments
Level of Risk Very low
STRUCTURE OF INVESTMENT LINKED TAKAFUL
Introduction to Investment-Linked Takaful
TYPES OF INVESTMENT-LINKED FUNDS INCOME FUND
Objective To provide a high level of current income consistent with
preservation of capital
Investment Strategy Investment in a multitude of sukuk, either issued by the Malaysian
Government or private companies.
Level of Risk Low
STRUCTURE OF INVESTMENT LINKED TAKAFUL
Introduction to Investment-Linked Takaful
TYPES OF INVESTMENT-LINKED FUNDS BALANCED FUND
Objective The long term growth of capital and a reasonable
level of income for investors.
Investment Strategy Investment in equity and fixed income securities.
Level of Risk Medium
STRUCTURE OF INVESTMENT LINKED TAKAFUL
Introduction to Investment-Linked Takaful
TYPES OF INVESTMENT-LINKED FUNDS PROPERTY FUND
Objective To provide the investor with a high income and long term capital
appreciation
Investment Strategy Investments in real estate securities and property securities
Level of Risk Medium
STRUCTURE OF INVESTMENT LINKED TAKAFUL
Introduction to Investment-Linked Takaful
TYPES OF INVESTMENT-LINKED FUNDS MANAGED FUND
Objective To offer investors moderate to high long term total return
Investment Strategy Investments in multitude of asset classes such as shares, property and
sukuk.
Level of Risk High
STRUCTURE OF INVESTMENT LINKED TAKAFUL
Introduction to Investment-Linked Takaful
TYPES OF INVESTMENT-LINKED FUNDS GROWTH FUND
Objective To ensure long-term capital growth
of the fund
Investment Strategy Investments in a portfolio of mixed assets, mainly growth biased equities to
achieve capital growth.
Level of Risk High
STRUCTURE OF INVESTMENT LINKED TAKAFUL
Introduction to Investment-Linked Takaful
TYPES OF INVESTMENT-LINKED FUNDS SPECIALIZED FUND
Objective To provide investors with capital appreciation
through investment in a specific industry or sector
Investment Strategy Investments in non-traditional asset classes that allow
investor to potentially gain exposure to very narrow
segments of the market or very specific investing
methodologies.
Level of Risk High
STRUCTURE OF INVESTMENT LINKED TAKAFUL
Introduction to Investment-Linked Takaful
RISK-RETURN TRADE OFF
It’s a principle that states potential return rises with an increase in risk.
.
There is a risk-return trade-off
Low-risk is associated with low
potential returns, whereas high-
risk is associated with high
potential returns
STRUCTURE OF INVESTMENT LINKED TAKAFUL
Introduction to Investment-Linked Takaful
Risk
Managed Fund
Property Fund
Specialized Fund
Balance Fund
Income fund
Expected Income / Return
INVESTMENT-LINKED FUNDS RISK-RETURN PROFILE
Every investment linked fund has risk-return profiles
The higher the return, the higher the risk
Growth Fund
Cash Fund
x
x
x
x
x
x
x
STRUCTURE OF INVESTMENT LINKED TAKAFUL
Introduction to Investment-Linked Takaful
It as an investment activity in which units from one fund are sold and the
proceeds from the sale are reinvested in another fund.
FUND SWITCHING
An investor's changed perception of investment opportunities
An investor’s change of risk profile.
Reasons for switching
STRUCTURE OF INVESTMENT LINKED TAKAFUL
Introduction to Investment-Linked Takaful
Some of the options offered in the market:
Takaful Operator offers free of charge for any switching during the year.
Takaful Operator offers free of charge for a limited number of switches within
a given period.
Takaful Operator charges for each and every switch.
FUND SWITCHING
STRUCTURE OF INVESTMENT LINKED TAKAFUL
Introduction to Investment-Linked Takaful
No Topics
1 Family Takaful Preliminaries
2 Family Takaful Plans
3 Family Takaful Practices: Certificate
Administration
4 Family Takaful Practices: Underwriting
5 Family Takaful Practices: Claims and Partial
Withdrawal
6 Key Consideration in Investment
7 Choice of Investment Vehicles
8 Introduction to Investment-Linked Takaful
9 Structure of Investment-Linked Takaful
10 How Investment-Linked Takaful Plan Work?
11 Taxation and Law Covering Investment-Linked
Takaful Plan
12 Identifying and Establishing Customer Needs
13 Family Takaful Practices: Marketing and
Services, Ethics and Code of Conduct
How Investment-Linked Takaful Plans Work
The value of the unit will be calculated as follow:
Value per unit = Total Fund Value
No. of Units
THE WORKING OF INVESTMENT-LINKED TAKAFUL
VALUE PER UNIT
Fund value - RM10,000,000
No. of units - 10,000,000
Thus, value per unit - RM10,000,000/10,000,000 units = RM1.00
What happen if the fund value increase from RM10 million to RM15 million with the
same number of units?
Calculation :
Fund value - RM 15,000,000 ; No. of units - 10,000,000
Value per unit - RM15,000,000/10,000,000 = RM1.50
VALUE PER UNIT EXAMPLE
THE WORKING OF INVESTMENT-LINKED TAKAFUL
How Investment-Linked Takaful Plans Work
The number of unit purchased will be calculated as follow:
No of Unit Purchased = (Contribution minus Certificate Charge)
Unit Price
INVESTMENT
PURCHASE OF UNITS IN AN INVESTMENT FUND
THE WORKING OF INVESTMENT-LINKED TAKAFUL
How Investment-Linked Takaful Plans Work
Monthly contribution - RM200
Unit price - RM1.25
Certificate charge - 5%
Calculation
Certificate charged = RM200 x 5%
= RM10
No of unit purchased = (RM200 minus RM10)/RM1.25
= 152 units
INVESTMENT EXAMPLE
THE WORKING OF INVESTMENT-LINKED TAKAFUL
How Investment-Linked Takaful Plans Work
Protection coverage is provided by contributing part of contribution
(tabarru’) via redemption of units from the investment funds.
The tabarru’ is undertaken by the ‘dripping method’.
PROTECTION
THE WORKING OF INVESTMENT-LINKED TAKAFUL
How Investment-Linked Takaful Plans Work
Monthly Tabarru’ - RM125
Unit Price - RM1.25
No of unit to be redeemed = RM125/RM1.25
= 100 units
INVESTMENT EXAMPLE
THE WORKING OF INVESTMENT-LINKED TAKAFUL
How Investment-Linked Takaful Plans Work
Cash value of the fund will be calculated as follow:
(No. of Units x Unit Price) – (Mortality Charges + Certificate Fee)
CASH VALUE
THE WORKING OF INVESTMENT-LINKED TAKAFUL
How Investment-Linked Takaful Plans Work
Number of units - 10,000
Unit price - RM1
Tabarru’ charge - 1%
Certificate fee - RM 100
Tabarru’ charge - (10,000 X RM1 X 1%) = RM100
* Cash value = (10,000 X RM1) - (RM100 + RM100)
= RM10,000 - RM 200
= RM9,800
CASH VALUE EXAMPLE
THE WORKING OF INVESTMENT-LINKED TAKAFUL
How Investment-Linked Takaful Plans Work
TOP-UPS Participant can make top-up anytime during the duration of the
contract.
Top-up will be used to purchase additional units (after deducting
top-up fee).
There will be no appropriation to the Participant Special Account
(tabarru’).
SINGLE
CONTRIBUTION
CERTIFICATE –
METHODS OF
CALCULATING
BENEFITS
BNM Guideline : BNM/RH/GL 010-15 relating to the benefit under
single contribution:
RM 5,000 or 125% of the single contributions, whichever is
higher.
For older ages and for substandard lives, subject to a minimum
of RM 5,000 or 105% of the single contributions, whichever is
higher.
THE WORKING OF INVESTMENT-LINKED TAKAFUL
How Investment-Linked Takaful Plans Work
CONTRIBUTION
HOLIDAY
(Participant does
not need to pay his
regular contribution
for a certain period)
This is granted if the value of the PIF is sufficient to fund the
deduction of tabarru’ and other charges under the certificate
during the contribution holiday period.
The BNM’s Guidelines on Investment-Linked Insurance/Takaful
Business : TO’s to get participant’s consent before deducting
any charges for riders from the PIF during the contribution
holiday period.
TO’s shall remind participants that riders are on an automatic
deduction mode in the annual statements and highlight the
consequences of continuing with such deductions
TO’s to provide advice on the options available to the participant
for example reducing/terminating the coverage of the riders.
THE WORKING OF INVESTMENT-LINKED TAKAFUL
How Investment-Linked Takaful Plans Work
Participants may request a partial cash withdrawal at any time before
maturity of their Certificate.
The withdrawal can be made in term of
number of units (The amount to be withdrawn is calculated by multiplying
the number of unit against the unit price.
fixed monetary amount (The amount to be withdrawn is calculated by
dividing the intended amount by unit price).
WITHDRAWAL BENEFIT
THE WORKING OF INVESTMENT-LINKED TAKAFUL
How Investment-Linked Takaful Plans Work
No of Unit - 1,000 units
Unit Price - RM1.50
Thus, withdrawal amount is = 1,000 units x RM1.50 = RM1,500
1. NO. OF UNITS EXAMPLE
THE WORKING OF INVESTMENT-LINKED TAKAFUL
How Investment-Linked Takaful Plans Work
Amount Withdrawn - RM2,000
Unit Price - RM1.20
Thus, unit to be sold = RM2,000 = RM1,666
RM1.20
2. FIXED MONETARY AMOUNT EXAMPLE
THE WORKING OF INVESTMENT-LINKED TAKAFUL
How Investment-Linked Takaful Plans Work
SURRENDER
VALUE
The participant can surrender the certificate at anytime.
The calculation of the surrender value is similar to the
calculation for withdrawal.
MATURITY
VALUE
Upon maturity of the Takaful certificate, all units of the PIF
will be redeemed at the Bid Price of the relevant funds.
The entire value in the PIF would be paid to the participant
as the maturity benefit.
THE WORKING OF INVESTMENT-LINKED TAKAFUL
How Investment-Linked Takaful Plans Work
FREE-LOOK
PERIOD
(participant reviews
the full certificate
document of the
product to verify
whether the product
meets his needs)
This will protects the participant should mis-selling occur at the
point of sale.
IFSA 2013, Schedule 8 Para. 2.
If a certificate is cancelled within the 15 days free-look period, the
Takaful Operator shall refund:
the unallocated contributions;
value of units that have been allocated (if any) at the unit price
at the next valuation date
any Takaful charges and certificate fee that have been deducted
(less medical examination expenses
THE WORKING OF INVESTMENT-LINKED TAKAFUL
How Investment-Linked Takaful Plans Work
Unit Value plus Sum Covered
the participant will get both the value
of the investment plus sum covered.
Unit Value or Death Cover
(whichever is higher)
the participant will get either the value
of the investment or the sum covered,
whichever is higher.
DEATH BENEFIT
2 types
THE WORKING OF INVESTMENT-LINKED TAKAFUL
SURPLUS
DISTRIBUTION The Takaful Operator will periodically perform actuarial
valuation of the PRF under the advice of the actuary
Surplus in the PRF is distributed according to the pre-
determined ratio
This surplus is paid if there is no claim during the period of
Takaful.
THE WORKING OF INVESTMENT-LINKED TAKAFUL
How Investment-Linked Takaful Plans Work
FUND
PERFORMANCE
REPORT AND
STATEMENT TO
PARTICIPANTS
The Takaful Operator to provide participants a report on the
performance and value of each investment-linked fund in
which they have units at least once a year.
THE WORKING OF INVESTMENT-LINKED TAKAFUL
How Investment-Linked Takaful Plans Work
No Topics
1 Family Takaful Preliminaries
2 Family Takaful Plans
3 Family Takaful Practices: Certificate
Administration
4 Family Takaful Practices: Underwriting
5 Family Takaful Practices: Claims and Partial
Withdrawal
6 Key Consideration in Investment
7 Choice of Investment Vehicles
8 Introduction to Investment-Linked Takaful
9 Structure of Investment-Linked Takaful
10 How Investment-Linked Takaful Plan Work?
11 Taxation and Law Covering Investment-Linked
Takaful Plan
12 Identifying and Establishing Customer Needs
13 Family Takaful Practices: Marketing and
Services, Ethics and Code of Conduct
TAXATION OF INVESTMENT LINKED TAKAFUL PLAN
Investment-linked Takaful plans are categorized as Family Takaful products
The contribution tax relief is allowable:
on the individual participant
on the life of the spouse of the individual participant
on the joint lives of the individual participant and the spouse
The maximum amount of relief for an ordinary Family Takaful is RM6,000 per
year less inclusively of Employees Provident Fund
For Medical and Education Plans, the tax relief is RM3,000 per yea
The proceeds distributed to participants of Investment-Linked Takaful are tax
free.
Taxation & Law Covering Investment-Linked Takaful Plan (ILTP)
Regulation under Islamic Financial Services Act 2013. – carried out by BNM . The
purpose include:-
PROTECTION OF PUBLIC INTEREST - Ensuring TO is financially solvent and is able to
meet its obligations to its certificate owner and claimants.
PROMOTION OF FAIRNESS AND EQUITY - Ensuring that TO, brokers and adjusters are
fair and equitable in their dealings with their clients and claimants.
FOSTERING OF COMPETENCE - Insisting on a high level of professional competence
and integrity of TO, brokers and adjusters.
PLAYING A DEVELOPMENTAL ROLE - Encouraging the Takaful industry to take an
active part in the economic development of the country.
LAW COVERING ILTP
Taxation & Law Covering Investment-Linked Takaful Plan (ILTP)
Investment-Linked Takaful Business BNM/RH/GL 010-15
(Guidelines)
Characteristics Description
Age Limit of Certificate Owners Participant of ILTPmust be at least 18 years old
Free Look Provision A 15 calendar days period from the date of delivery to examine certificate terms and conditions.
Certificate can be terminated within the 15-days free look period.
Any contribution paid in respect of the certificate shall be immediately refunded
Taxation & Law Covering Investment-Linked Takaful Plan (ILTP)
Characteristics Description
Minimum Death
Benefit
Minimum death benefits for ILTP (excluding riders):
single contribution certificates - RM5,000 or 125% of the
single contribution, whichever is higher
regular contribution certificates - RM5,000 or the prevailing
multiple of annual contributions, whichever is higher.
TO may provide death benefits lower than the minimum specified
above for older ages and for substandard lives, subject to a minimum of
RM5,000 or 105% of the single contributions, whichever is higher.
Investment-Linked Takaful Business BNM/RH/GL 010-
15 (Guidelines)
Taxation & Law Covering Investment-Linked Takaful Plan (ILTP)
Characteristics Description
Minimum Contribution
Payment
Single contribution plan must at least have a minimum
contribution of RM3,000.
Intermediation
Only agents and intermediaries who have passed the
TBE, or its equivalent, are allowed to market investment-
linked Takaful products
Disclosure of
Information
The sales/marketing illustration must meet the minimum
content, format and other disclosure requirements
specified in the Code and Guidelines on Family Takaful
Products.
Investment-Linked Takaful Business BNM/RH/GL 010-
15 (Guidelines)
Taxation & Law Covering Investment-Linked Takaful Plan (ILTP)
No Topics
1 Family Takaful Preliminaries
2 Family Takaful Plans
3 Family Takaful Practices: Certificate
Administration
4 Family Takaful Practices: Underwriting
5 Family Takaful Practices: Claims and Partial
Withdrawal
6 Key Consideration in Investment
7 Choice of Investment Vehicles
8 Introduction to Investment-Linked Takaful
9 Structure of Investment-Linked Takaful
10 How Investment-Linked Takaful Plan Work?
11 Taxation and Law Covering Investment-Linked
Takaful Plan
12 Identifying and Establishing Customer Needs
13 Family Takaful Practices: Marketing and
Services, Ethics and Code of Conduct
1. IDENTIFYING AND ESTABLISHING CUSTOMER NEEDS
The agent needs to identify and provide the required financial advice in order to
meet the customer’s needs
The structured process of providing advice involves the following steps:-
Establishing and defining the client-agent relationship.
Gathering all relevant financial data, including goals.
Analyzing and evaluating the client financial status.
Developing and presenting recommendations.
Implementing the recommendations.
Monitoring the recommendations.
IDENTIFYING AND ESTABLISHING CUSTOMER NEEDS
Identifying and Establishing Customer Needs
2. ESTABLISHING AND DEFINING THE CLIENT-AGENT RELATIONSHIP
Major foundation is trust
Establish strong relationship with the client
Agent to convince the client that they can assist client’s financial goals
3. GATHERING ALL RELEVANT FINANCIAL DATA INCLUDING GOALS
Gather relevant data for an analysis for client’s needs
Conduct ‘fact finding’ exercise and fill up Customer Fact Finding form:
Customer’s Personal and Dependents details
Life and Financial Priorities and Goals
Risk Profile
Net Worth Analysis
Cash Flow Analysis
Recommendations and Record of Advice
IDENTIFYING AND ESTABLISHING CUSTOMER NEEDS
Identifying and Establishing Customer Needs
4. DEVELOPING PLANS AND STRATEGIES TO MEET THE GOALS
Agent to develop pertinent plans to help the client to achieve their goals
Plan must satisfy the client’s needs in areas like:
Coverage (adequate and sufficient)
Planning for children education
Retirement planning
Asset accumulation
Estate planning
5. DISCUSS POSSIBLE RECOMMENDATIONS
Agent to discuss in length the developed plan
Offer recommendation to address client’s goals
IDENTIFYING AND ESTABLISHING CUSTOMER NEEDS
Identifying and Establishing Customer Needs
7. MONITORING THE RECOMMENDATIONS
Agent to do regular monitoring and inform clients on the progress of the plan
Agent to ensure client obtain the report send by the Operator on the ILTP
and explain the performance
Must be able to assist client to do the switching
To review the plan on a half yearly basis funds growths are in tandem with
the initial objectives established
6. IMPLEMENTING THE RECOMMENDATIONS
Client and agent must agree on how the recommendation will be
implemented
Must be clearly communicated to the client
IDENTIFYING AND ESTABLISHING CUSTOMER NEEDS
Identifying and Establishing Customer Needs
No Topics
1 Family Takaful Preliminaries
2 Family Takaful Plans
3 Family Takaful Practices: Certificate
Administration
4 Family Takaful Practices: Underwriting
5 Family Takaful Practices: Claims and Partial
Withdrawal
6 Key Consideration in Investment
7 Choice of Investment Vehicles
8 Introduction to Investment-Linked Takaful
9 Structure of Investment-Linked Takaful
10 How Investment-Linked Takaful Plan Work?
11 Taxation and Law Covering Investment-Linked
Takaful Plan
12 Identifying and Establishing Customer Needs
13 Family Takaful Practices: Marketing and
Services, Ethics and Code of Conduct
MARKETING
Term FAMILY TAKAFUL covers all types of takaful :
Home Services. Ordinary Family, Annuities, Pension Scheme
Investment-Linked and Permanent Health Takaful
The Code applies to intermediaries and staff of Operators. Brokers are excluded
The onus is on MTA members to enforce the code. Audit/Compliance Dept to
submit quarterly report to BNM
In the case of complaints, intermediaries must cooperate with TO
Intermediaries to conduct business with Utmost Good Faith and integrity
Family Takaful Practices: Marketing and Services, Ethics and Code of Conduct
GENERAL SALES PRINCIPLES
(from the Code of Ethics)
INTERMEDIARY SHALL:-
identify the Operator which is represented and produce the Authorization Card
propose a Certificate suitable to the client’s needs
give advise only on matters in which the intermediary is competent
keep all participant information completely confidential
not mention another Operator when making comparison on products
render continuous services to the participant
INTERMEDIARY SHALL NOT :-
Make inaccurate or unfair criticism of any Takaful Operator
persuade prospective participant to cancel any existing certificate (ROP/Twisting)
Family Takaful Practices: Marketing and Services, Ethics and Code of Conduct
DEFINITION:
To discontinue a certificate or have a certificate made paid up and then to effect a
new one with another Takaful Operator or the same Takaful Operator
MARKETING
REPLACEMENT OF CERTIFICATE (ROC)
DETRIMENT THAT ARISE FROM ROC:
New certificate must commence again with new date
Qualifying period starts anew
Client has to pay higher contribution with the increase of age
Client has to pay initial cost again
Suicide and incontestable clause start all over again
Family Takaful Practices: Marketing and Services, Ethics and Code of Conduct
EXPLANATION OF THE CONTRACT
THE INTERMEDIARY SHALL :
Explain all provisions of the contract to prospective participant;
Draw attention to any restriction including exclusions;
Draw attention to the long-term nature and consequence of early
discontinuance and/or surrender.
Explain to the client the difference between fixed benefits and projected
benefits.
Projected benefits are illustrated, based on certain assumptions, and
hence are not guaranteed
Use the whole illustration and not a part thereof.
Family Takaful Practices: Marketing and Services, Ethics and Code of Conduct
DISCLOSURE OF UNDERWRITING INFORMATION
The intermediary shall on obtaining the completed proposal form or any other
material:-
Avoid influencing the proposer and make it clear that all the answers or
statements are the proposer’s own responsibility;
Ensure that the consequences of non-disclosure and inaccuracies are pointed
out to the proposer by drawing attention to the relevant statements in the
proposal form and by explaining them to the proposer.
Family Takaful Practices: Marketing and Services, Ethics and Code of Conduct
ACCOUNT AND FINANCIAL ASPECT
The intermediary shall :-
Acknowledge receipt and maintain a proper account of all monies received in
connection with a Takaful certificate and shall distinguish such contribution from
any other payment included in the moneys;
Forward to the Takaful Operator without delay any monies received for Family
Takaful
Family Takaful Practices: Marketing and Services, Ethics and Code of Conduct
GUIDELINES ON THE CODE OF
CONDUCT
Code of Ethic
(Statement of
Philosophy)Coverage
Monitoring
Devices
Family Takaful Practices: Marketing and Services, Ethics and Code of Conduct
is based on the philosophy of risk sharing
It is a business based on
The Family Takaful Business trust and honesty, requiring a high degree of responsibility and
professionalism.
The confidence of participants and members of the public in the integrity and honesty of
Takaful Operators shall be safeguarded and enhanced.
Takaful Operators shall at all times see that their business is soundly managed to ensure
the safety of participants’ savings and the credibility of their companies.
Takaful Operators shall maintain an efficient system and provide prompt service to
participants and to assist and advise them where necessary, with the aim of promoting
goodwill
CODE OF ETHIC
(STATEMENT OF PHILOSOPHY)
Family Takaful Practices: Marketing and Services, Ethics and Code of Conduct
Covers all employees of all Takaful Operators
Set out the minimum standards of conduct expected of all employees of the
Takaful Operator.
Takaful Operators are free to formulate more comprehensive sets of rules for
maintaining ethical standards amongst their employees.
COVERAGE
Family Takaful Practices: Marketing and Services, Ethics and Code of Conduct
Takaful Operator is required to:
require all employees to sign a declaration to observe the guidelines.
require all intermediaries to sign a declaration to observe the guidelines.
HOD’s to ensure compliance with the guidelines and to handle enquiries from
employees on matters relating to the code of conduct.
breaches observed are to be reported to an Audit / Disciplinary committee
maintain centralised records of breaches.
report immediately cases of fraud to the Police and Bank Negara Malaysia.
MONITORING DEVICES
Family Takaful Practices: Marketing and Services, Ethics and Code of Conduct
CONTINUING PROFESSIONAL DEVELOPMENT (CPD)
REQUIREMENTS
KEY POINTS:
Mandatory minimum training of 20 hours for Family Takaful and 12 hours for
General Takaful within the first 6 months of appointment.
for agents and Unit Managers : 30 CPD hours every year including 30 training
hours for Leadership Agency Management Program (LAMP)
Agency Managers and Financial institution employees : 30 CPD hours every
year
Financial institution employees marketing mortgage reducing term Takaful and
other credit-related products: 8 CPD hours every year
Minimum 5 CPD hours every year as mentioned in the Balance Score Card
(BSC)* requirement) for all intermediaries
Family Takaful Practices: Marketing and Services, Ethics and Code of Conduct
ETHICS AND CONDUCT
SEVEN PRINCIPLES UNDERLYING THE GUIDELINES
To avoid conflict of interest;
To avoid misuse of position ;
To prevent misuse of information;
To ensure completeness and accuracy of relevant records;
To ensure confidentiality of communication and transactions between Takaful
Operator and its clients/participants;
To ensure fair and equitable treatment of all clients/participants;
To conduct business with Utmost Good Faith and integrity
Family Takaful Practices: Marketing and Services, Ethics and Code of Conduct
COMMISSION WITHIN WAKĀLAH FEES AND ITS DISCLOSURE
BNM Guidelines on Operating Costs of Family Takaful Business – Dec 2017:
Limits the amount of commissions payable to Family Takaful agents.
Limit the agency commission to related expenses and other management expenses.
Sets the Agency Structure that the Takaful Operators will have to adopt in the course of
running their sales agencies.
Commissions may vary according to BSC application by respective Takaful Operators.
Family Takaful Practices: Marketing and Services, Ethics and Code of Conduct
FAMILY TAKAFUL PRACTICE
Claims
Proposal
Forms
Certificates and
Accompanying
Documents
Sales Materials/
Advertisements
Aim: Reduce the formalities involved in new certificates issuance and payment of a claim
Family Takaful Practices: Marketing and Services, Ethics and Code of Conduct
FAMILY TAKAFUL PRACTICE
CLAIMS
KEY POINTS:
Takaful Operator may not unreasonably reject a claim on the grounds of non-
disclosure or misrepresentation of a matter that was outside the knowledge of
the proposer.
If there is a time limit for the notification of a claim, the claimant will not be
expected to do more than to report a claim and subsequent developments as
soon as reasonably possible.
On the claimant proving the covered event and the right to receive the claim, the
claim has to be settled without undue delay, generally within 60 days.
The Takaful Operator shall not collect any claim processing fees from the
participant or the beneficiary.
Family Takaful Practices: Marketing and Services, Ethics and Code of Conduct
FAMILY TAKAFUL PRACTICE
PROPOSAL FORMS
A statement for disclosure of material fact should be included in the proposal
form:
drawing attention to the consequences of failure to disclose all material facts
warning that if the prospective participant is in any doubt about whether
certain facts are material, these facts should be disclosed.
Takaful Operator shall provide a copy of signed proposal form to the participant
together with the original certificate
Family Takaful Practices: Marketing and Services, Ethics and Code of Conduct
FAMILY TAKAFUL PRACTICE
CERTIFICATES AND ACCOMPANYING DOCUMENTS
Takaful Operators to develop clearer proposal forms and certificate documents
due to the legal nature of Takaful contracts
Client to sign ‘Customer Fact-Finding’ in line with Proper Advice Practice (PAP
Guidelines
The certificate and accompanying documents must indicate whether there are
rights to a surrender value.
For term or endowment cover, sales literature should indicate in the contract:
that these are long-term contracts
surrender values, especially in early years are often less than the total
contribution paid
Family Takaful Practices: Marketing and Services, Ethics and Code of Conduct
FAMILY TAKAFUL PRACTICE
PROMOTION MATERIAL/ADVERTISEMENT
To ensure information in the sales materials and advertisements are :-
Correct and truthful
Not misleading the public
Compliance with Syariah
Family Takaful Practices: Marketing and Services, Ethics and Code of Conduct
Thank You