Definition of the Islamic Insurance (Takaful) Term
The following relevant terms are defined for clarity.
i. Assurance: It is a conventional insurance policy which shares risk that come with mutual solidarity and guarantee as opposed to the transfer of risk.
ii. Average Clause: It stipulates that a Takaful fund is only liable for such proportion of the loss as the sum covered bears to total value at risk.
iii. Capacity: It refers to the Takaful operators’ existing assets and structures that can enable them to market the services.
iv. Competences: It refers to the skill and knowledge of Takaful which is required to enable the operators to convince customers to buy the Takaful services.
v. Claims: It is a notification to a Takaful operator that payment of an amount is due under the term of the certificate.
vi. Claims Ratio: It is the ratio of Net Claims incurred to earned contribution.
vii. Contribution: It is the payment of an amount (premium) by a participant to the Takaful protection pool, whether direct or through intermediaries for the purpose of mutual protection and assistance.
viii. Designated Charities: In the event that there is a surplus in the Takaful protection pool after all expenses have been deducted, then that Net surplus will be donated to a designated charity or charities.
ix. Al – Dharurat: This concept is used to provide permission for an action that would be considered Haram under normal circumstances, borne out of the necessity of the situation.
x. Event of Loss: This is an event that gives rise to a loss as defined in the Takaful policy.
xi. Fatwa: Juristic opinion, juridical decision in line with the Muslim faith.
xii. General Takaful: This is a protection to participant against losses arising out of perils such as accident, fire, flood, liability and burglary.
xiii. Gharar: This means uncertainty, it is a transaction under Islamic law which is held invalid, preventable and avoidable due to the involvement of the element of uncertainty.
xiv. Group Family Takaful: Islamic insurance on a group of people under a master certificate typically issued to an employer for the benefit of employees or to members of an association.
xv. Hadith: This is a word of the Holy Prophet (SAW), his traditions, the narrative of the sayings and actions or the acts of his companions which have gotten his blessing or approval.
xvi. Hibah: It means a gift
xvii. Halal: Lawful, valid in Islam; one of the five major Shariah categorizations of human acts.
xviii. Haram: Unlawful, forbidden in Islam; one of the five major Shariah categorization of human acts.
xix. Indemnity: It refers to as a restoration to the claimant of a loss by payment, repair or replacement.
xx. Islamic Finance: Financial services that meet the requirement of the Shari’ah or Islamic law.
xxi. Kafalah: This is an agreement to pay the debt of another party who defaults, or to guarantee.
xxii. Maisir: This means Gambling; is one of the fundamental prohibitions in Islamic law and finance.
xxiii. Mudaraba: It is an investment co-partnership whereby the investor (the Rab’ul Mal) provides capital to another party/entrepreneur (the Mudarib) in order to undertake a business/investment activity for profit and loss sharing purpose.
xxiv. Qard Hassan: It is an interest-free loan, identified as a means of charity or helping other in need.
xxv. Participant: The insured (muwakkil) is the contributing party to the Takaful policy who is covered through the mutual protection and solidarity of the Takaful policy.
xxvi. Participants Account: This is where the portion of contributions from the participant for the purpose of investment/saving is credited.
xxvii. Participants’ Special Account: This is where the portion of contribution from the participant for the purpose of charity (Tabarru) is credited.
xxviii. Rabbul Mal: This means capital provider/ Takaful operators or companies. xxix. Rasul mal: This means Takaful contributor/customers who buy the service.
xxx. Riba: This means usury or interest; is a return of money on money whether is fixed, floating, simple or compounded.
xxxi. Shariah: Islamic common law derived mainly from the noble Qur’an and the Hadith.
xxxii. Sunnah: The saying, the action, the teaching and the approval of the Holy Prophet Muhammad (SAW).
xxxiii. Ta’awun: This means cooperation, that is, cooperation among people.
xxxiv. Tabarru: This means donation, charity, the purpose of which is not commercial. xxxv. Takaful: This means mutual responsibility, another name for Islamic insurance.
xxxvi. Wakala: This means Agency i.e. a contract between an agent and principal that enables the agent to render services and be paid a fee. Read: Average Car Insurance Rates by Age and Gender
xxxvii. Waqf: This means a charitable donation.