Takaful

The principle of working together or “Takaful” can be best described in its sociological context, i.e. a principle of anonymous solidarity where the society comes together to aid its individual components for the greater good of general Islamic society. The essence of Takaful is best illustrated in the Quran: “Help one another in virtue, righteousness and piety, but help not one another in sin and transgression”. There are three applied models of Takaful and these are as follows:

1. Mudarabah Model: This is essentially a basis for sharing profit and loss between the Takaful operator and Policyholders. The Takaful operator manages the operation in return for a share of the surplus on underwriting and a share of profit from the investment.
2. Wakalah Model: The Takaful operator and Takaful participants are bonded in a client/agency relationship whereby the Takaful operator acts as an agent for Takaful participants to undertake all investment activities and insurance business. Against this service, it receives a fee called agency fees, usually a part of paid subscriptions.
3. Hybrid Model: Under this model, Takaful insurance contracts are issued under the Wakalah model, while Mudarabah model is applied for all investment activities.