Takaful (Islamic Insurance)
This domain tests why takaful is not conventional insurance relabelled: its rationale, its fund architecture, and the rules for distributing surplus.
Architecture
- Participants pay contributions into a participants' fund as tabarru' (donation), not as a premium buying a guaranteed indemnity.
- The operator manages the fund for a fee: wakala (fixed fee, sometimes with a performance incentive), mudaraba (share of profit), or a hybrid wakala–mudaraba. In the waqf model the participants' fund is constituted as a waqf.
- Shareholders' fund and participants' fund are segregated. Shareholders do not take underwriting results; deficits are met by an interest-free loan (qard hasan), recoverable from future surplus under most rulings.
Rules
- Conventional insurance fails on gharar (uncertain claim value), maysir and riba in invested funds.
- Surplus is distributed only per the policy terms and SSB approval, after claims, expenses, retakaful and reserves.
- AAOIFI FAS 12, 13 and 19 govern presentation, surplus allocation and contribution accounting.
Worked example
Contributions $1,000,000; wakala fee 30% ($300,000); claims $450,000; expenses $50,000. Surplus = 1,000,000 − 300,000 − 450,000 − 50,000 = $200,000. Under a 70:30 participant–operator surplus clause, $140,000 returns to eligible participants and $60,000 goes to the operator. The wakala fee was earned whatever the claims outcome; the surplus share is conditional on a surplus existing.
Traps
A guaranteed 'return of contribution' turns the arrangement into a conventional indemnity contract; refunding surplus to shareholders; charging both a wakala fee and a mudaraba share without an SSB-approved basis.