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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


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


Takaful Underwriting


Takaful Certificate

Administration


Takaful Claims

1. Introduction to General

Takaful

2. General Takaful Classes -

Motor Takaful

3. General Takaful Classes

– Fire Takaful


– Marine and Aviation

Takaful


– 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


Underwriting


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


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


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


2 Concept of Risk



Insurance









Administration


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


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


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


Description of the Components of Islam


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)


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


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


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


• 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


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)


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


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


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


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


• General Prohibitions in Muamalat

Maysir(Gambling)

Gharār(Uncertainty) Usury (Ribā)


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)


• 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


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)


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)


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)


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)


• 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)


• 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


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


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


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.


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


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.


Part A-Basic Takaful and Medical &

Health Takaful

12 TopicsNo Topics


2 Concept of Risk



Insurance









Administration


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


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


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))



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 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


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


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


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


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


Concept of Risk

This practice is called Takaful or

mutual protection

Sharing risks with others who have similar nature of risk

Risk Sharing


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.


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.


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.


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


Health Takaful

12 TopicsNo Topics


2 Concept of Risk



Insurance









Administration


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


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


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


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


Takaful Philosophy and Concept

Takaful

Solidarity of

Society

Brotherhood

Mutual

Responsibility


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


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.


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.


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)


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.



Health Takaful

12 TopicsNo Topics


2 Concept of Risk



Insurance









Administration


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


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


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


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


Only unforeseen and fortuitous losses are

insurable.

Therefore, foreseeable misfortune or

losses are generally not insurable (except

in Life Insurance)

Basis of 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)


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


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)



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.



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



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.



Health Takaful

12 TopicsNo Topics


2 Concept of Risk



Insurance









Administration


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


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)


Permissible Takaful Interest exists when there is a relationship

between participants and the subject matter



(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



(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.



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


(PTI)


A person shall be deemed to have PTI in the person covered if the other person is:



(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


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)


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.


Permissible Takaful

Interest (PTI)


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.


Duty of Utmost Good

Faith


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


Breach of Utmost good faith occurs when the participant


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


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.


Duty of Utmost Good

Faith Material Fact


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.


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.


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



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



One party has the right to "step into the shoes" of another

party for the purpose of bringing a claim for damages.


Definition

Subrogation


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.



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.


Contribution


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.


Proximate Cause


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


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


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.


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


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.


A contract of agency, which means doing any work or

providing any service on behalf of any other person

Wakālah

Application


Types of Takaful Operational Models and its Application

MAIN MODELS

Muḍārabah(profit

sharing)

Wakālah(agency).

Mudarabah+ Wakalah

(hybrid model)


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.


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


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


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


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:


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


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


Wakālah(agency).


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)


Wakalah Model for Family Takaful


Wakālah(agency).


Process

5. Investment profit (if any) will be treated as follows:


b. Net profit after deducting performance fee will be distributed to PRF and PIF.



b. Net surplus after deducting performance fee will be distributed to the participants.


Wakalah Model for General Takaful



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)


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)



PARTICIPANTS

CONTRIBUTION

S

PARTICIPANTS

RISK FUNDS

INVESTMENT

PROFIT

CLAIMS

RETAKAFUL

RESERVE

SURPLUS SHAREHOLDER

S FUND

TAKAFUL

COMPANY

Muḍārabah(profit

sharing)

Mudarabah Model for 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)


Muḍārabah(profit

sharing)


Mudarabah Model for General 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



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)


Muḍārabah(profit

sharing)



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)




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)



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)



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)



PARTICIPANTS

CONTRIBUTION

S

PARTICIPANTS

RISK FUNDS

INVESTMENT

PROFIT

CLAIMS

RETAKAFUL

RESERVE

SURPLUSSHAREHOLDER

S FUND

TAKAFUL

COMPANY

Mudarabah+ Wakalah

(hybrid model)

WAKALAH

Hybrid Model




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


5. Investment profit shared among participants and the Operator based on the pre-

agreed ratio


Payment of performance fee to the Takaful Operator.

Net surplus after deducting performance fee will be distributed to the participants

Process



Mudarabah+ Wakalah

(hybrid model)

Hybrid Model


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




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


5. Investment profit shared among participants and the Operator based on the pre-

agreed ratio


Payment of performance fee to the Takaful Operator.

Net surplus after deducting performance fee will be distributed to the participants

Process



Mudarabah+ Wakalah

(hybrid model)

Hybrid Model



Health Takaful

12 TopicsNo Topics


2 Concept of Risk



Insurance









Administration


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



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.



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


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


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.


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.


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


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)


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


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


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


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.


Malaysia Deposit Insurance Corporation Act 2011

PIDM

Established

to administer the national deposit insurance system aimed at protecting

depositors in commercial and Islamic banks.

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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


Financial Consumer Complaints and Disputes

OMBUDSMAN FOR FINANCIAL SERVICES (OFS)

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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




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




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.



BANK NEGARA MALAYSIA LINK

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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.



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



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


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


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.


INDUSTRY ASSOCIATIONS

TO FACILITATE “SELF-REGULATION” AMONG INDUSTRY PLAYERS.

ALLOWS MEDIATION BETWEEN AUTHORITY AND INDUSTRY

Main purpose


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


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


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


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


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)



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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 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)



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.



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



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



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


DIFFERENCES BETWEEN THE INTERMEDIARIES

Intermediary Represents Licensed/Registere

d by

AGENT Takaful Operator MTA

BROKER Customer BNM

FINANCIAL

ADVISER

Customer BNM



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


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.


OBLIGATIONS OF THE PRINCIPAL


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



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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


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


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


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


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.




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.


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.



“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.


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.


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


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


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.



Takaful Plan


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



Takaful Plan


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



Takaful Plan

Other important disclosures



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Medical and Health Takaful Types of Plan

Hospitalisation and Surgical Takaful Plan

Hospitalisation Income Benefits

Critical Illnesses

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



Some plans may be extended to cover the following

Hospital Cash Allowance.

Outpatient Cancer Treatment.

Outpatient Kidney Dialysis.

Organ Transplant



• 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



• 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 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.


GENERAL EXCLUSIONS


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.


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.



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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


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



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.



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.



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.



UNDERWRITING PROCESSES

Identification and

evaluation of risk

Selection of Risk

Underwriting Decisions


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


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.



for Identification


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.



for Identification


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



for Identification


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


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


SELECTION OF RISK

• Medical and Health Takaful Underwriting


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



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



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,


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.



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


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


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



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


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.


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


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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



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



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.



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.



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.



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



Implied Conditions

Duty of utmost good faith

Existence of permissible interest

Existence of subject matter of Takaful products

Identification of subject matter of Takaful.


The alterations to be made may relate to any of the following:


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


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

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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


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


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


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



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



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



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



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



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)



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



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


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


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

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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)


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.


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)


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.




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




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.




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.


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 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.

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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.


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.



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.



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.



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


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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


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


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


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


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


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


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


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


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


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


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


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


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


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


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

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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.


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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


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


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.


NOTIFICATION OF CLAIMS


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


DEATH CLAIMS


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.


DEATH CLAIMS


TOTAL PERMANENT DISABILITY CLAIMS

TWO TYPES

Total permanent disability claim

due to natural causes or illness


due to accidental causes



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


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.


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


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.


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


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


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


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Takaful Plan




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


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.



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



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


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


RISK OR SECURITY



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.



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Investment Portfolios Horizon



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


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



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


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


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




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.


DIVERSIFICATION

PROCESS OF INVESTING OVER ASSET CLASSES:

(‘Don’t put all the eggs in one basket’)


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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



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


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 .



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



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



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


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


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


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


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


“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


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


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


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


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


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


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


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


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.


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Takaful Plan




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


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


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


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


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.


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


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


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.


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




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




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


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


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


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.


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


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


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


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


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Administration



Withdrawal




9 Structure of Investment-Linked Takaful



Takaful Plan





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



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



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



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



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



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



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



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



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



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



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



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



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Takaful Plan




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 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



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



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



Monthly Tabarru’ - RM125

Unit Price - RM1.25

No of unit to be redeemed = RM125/RM1.25

= 100 units

INVESTMENT EXAMPLE



Cash value of the fund will be calculated as follow:

(No. of Units x Unit Price) – (Mortality Charges + Certificate Fee)

CASH VALUE



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



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.



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.



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



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



Amount Withdrawn - RM2,000

Unit Price - RM1.20

Thus, unit to be sold = RM2,000 = RM1,666

RM1.20

2. FIXED MONETARY AMOUNT EXAMPLE



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.



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



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


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.



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.



No Topics




Administration



Withdrawal







Takaful Plan




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


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



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)



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)


No Topics




Administration



Withdrawal







Takaful Plan




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



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



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



No Topics




Administration



Withdrawal







Takaful Plan




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)


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


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.


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.


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


GUIDELINES ON THE CODE OF

CONDUCT

Code of Ethic

(Statement of

Philosophy)Coverage

Monitoring

Devices


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)


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


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


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


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


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 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



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.



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



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



PROMOTION MATERIAL/ADVERTISEMENT

To ensure information in the sales materials and advertisements are :-

Correct and truthful

Not misleading the public

Compliance with Syariah


Thank You