Tutorial 8: TAKAFUL (1)

TRUE/FALSE
1. Takaful is the Islamic alternative to conventional insurance, often translated as ‘Islamic
insurance’.
true

2. The real concept of takaful relates more to a social security system run through
collaborative efforts of the people.
true

3. The three basic concepts of mutuality embodied in the takaful model of insurance are:
mutual help, mutual responsibility, and mutual financial interest.
False

4. Takaful industry is limited in its scope to Malaysia and the Middle Eastern Muslim
countries.
false

5. Literally, takaful means joint responsibility or guarantee based on mutual agreement.

true

6. Takaful is an alternative system of insurance where members contribute their financial

resources into a common pool based on the principles of profit-and-loss sharing (PLS).
false

7. Mitigation of risk while carrying out commercial activities is not permissible in Islam.
false

8. Prohibitive elements in Islamic commercial transactions such as riba, gharar, and maysir
are also prohibited in the design of takaful models.
true

9. The concept of donations is adopted and merged with other frameworks of Islamic
commercial transactions to complement premiums.
false

10. Premiums paid by takaful policyholders are considered as donations towards the common
cause to assist those members who suffer any loss.
True
 11. In Islamic law, the role of the operator of the cooperative insurance business is integrated
within the participants' role.
false

12. Islamic law restricts the role of the insurance company to merely an operator who is
appointed to manage the portfolio and invest the insurance contribution for and on behalf
of the participants.
true

13. Although the aim of takaful is to promote solidarity and cooperation among Muslims
under the principle of ta`awun, its initial objective remains to gain profit.
false

14. There are two main parties in the conventional insurance: the insurance company and the
operator.
false

15. The insured party in the conventional insurance has nothing to do with other insured
parties in terms of guaranteeing one another against any loss.
true

Multiple Choices Questions

1. The basic concept(s) of mutuality that is/are embodied in the takaful model of
insurance include:
a) mutual help
b) mutual responsibility
c) mutual protection
d) all of the above

2. Takaful is an alternative system of insurance where members contribute their financial

resources into a common pool based on the principles of:
a) ta’awun (mutual assistance) and tabarru’ (donation)
b) profit and loss sharing
c) business partnership
d) all of the above

3. The noble hadith of Prophet Mohammed peace be upon him ‘tie your camel first’ typifies
the importance of:
a) taking all possible precautions while carrying out commercial as well as other civil
activities then relying on the Almighty Allah for protection
b) getting insurance cover against market risks and losses
c) putting in place appropriate measures of risk management while carrying out commercial
activities
d) all of the above

4. The following features are unique to takaful EXCEPT:

a) cooperative risk sharing
b) profit and loss sharing
c) clear financial segregation
d) Sharī‘ah-compliant policies and strategies

5. In the conventional practice of insurance business:

a) the insurance company is a profit-making entity which agrees to bear the financial burden
and losses of its policyholders
b) the shareholders own the company and are entitled to receive any profit and bear the
burden of any deficit recorded at the end of the financial year
c) there is no restriction in investment of funds
d) all of the above

6. The number of parties involved in takaful are:

a) two
b) three
c) many
d) none of the above

7. Takaful premiums are:

a) considered as trust held by the operator on behalf of the participants
b) paid in return for an insurance cover
c) recognized as deposits that must be returned to the participants at the end of business year
d) all of the above

8. The modern history of takaful dates back to 1979 when:

a) Islamic-Arab Insurance Company was established in Saudi Arabia and later in United
Arab Emirates
b) the Islamic Insurance Company was established in Sudan and offered its takaful based on
the cooperative insurance model
c) Malaysia enacted the Takaful Act which provides for the regulation of takaful business in
Malaysia and other incidental matters
d) the OIC Fiqh Academy approved the takaful system

9. Which of the following is NOT a model of takaful?

a) the Mudarabah Model
b) the Wakalah Model
c) hybrid Wakalah-cum-Mudarabah Model
d) none of the above

10. Under the mudarabah model of takaful, the funds contributed by the participants into the
common pool of funds, which is used for underwriting purposes, is known as:
a) Participants’ Risk Fund (PRF)
 b) Participants’ Investment Fund (PIF)
c) Participants’ Retirement Fund (PRF)
d) Participants’ Management Fund (PMF)

Short-essay questions
1. Discuss briefly the three core principles of takaful.
The main features of takaful are based on the following core principles:
1. Tabarru’ (donation/contribution) commitment. Tabarru’ is an Islamic concept of
donation or charitable contribution that is primarily targeted at assisting others. Each
takaful participant makes this commitment to fulfill the objective of mutual assistance
through premiums.
2. Ta’awun or mutual assistance. Participants agree to mutually indemnify one another in
the event of losses arising from an unforeseen event. While the Islamic form of
cooperative or mutual assistance is not averse to profit-making, the primary objective of
the scheme is to assist one another based on the concept of ta’awun as chiefly
documented in the Qur’an and the Sunnah.
3. Prohibition of riba (usury), gharar (excessive risk or uncertainty), and maysir
(gambling or speculation). The takaful operator, who technically manages and oversees
the takaful funds, must consider the mandatory prohibitions in commercial transactions
when making investment decisions.
Any takaful scheme structured upon a combination of the three core principles described
satisfies the basic requirements of the Sharī‘ah.

2. Among the major differences between takaful and conventional insurance is the parties to
the contract. Briefly discuss.
There are two main parties in conventional insurance, i.e. the insurance company and the
insured party. The insured party has nothing to do with other insured parties in terms of
guaranteeing one another against any loss. The insured party is only concerned about
itself. Conversely, the parties in takaful are many. The participants in the takaful scheme
mutually insure one another against any loss. The takaful operator cannot claim to be the
insurer because it only acts as the administrator of the funds in accordance with the
Sharī‘ah. The participants insure themselves against any loss based on mutual agreement
and a mutual sense of responsibility.

3. What are the major differences between takaful and conventional insurance?
There are certain elements in conventional insurance that are unlawful in Sharī‘ah and
thus contradict fundamental precept. These elements are the source of major differences
between takaful and conventional insurance. The major differences between the two
frameworks are parties to the contract, payment of premiums, and investment of
insurance funds.