CIFE Takaful Insurance 2 — Questions and Answers
Question 1: What is 'Family Takaful' and how does it differ from General Takaful?
- Family Takaful is the long-term Islamic equivalent of life insurance covering mortality, savings, and investment; General Takaful covers short-term risks like property, motor, and health (Correct answer)
- Family Takaful covers motor vehicles and General Takaful covers life risks
- They are the same product with different marketing names
- General Takaful is prohibited while Family Takaful is mandatory
Correct answer: Family Takaful is the long-term Islamic equivalent of life insurance covering mortality, savings, and investment; General Takaful covers short-term risks like property, motor, and health
Family Takaful combines protection against death with a savings or investment component over the long term; General Takaful provides short-term coverage for property, motor, marine, and liability risks.
Question 2: What is the 'Qard' (loan) mechanism used by Takaful operators when claims exceed the Takaful fund balance?
- The operator provides an interest-free loan (Qard Hasan) to the deficit participants' fund to cover claims, which is repaid from future surpluses (Correct answer)
- The operator charges participants additional premiums immediately
- The government covers the deficit automatically
- Claims are not paid if the fund is in deficit
Correct answer: The operator provides an interest-free loan (Qard Hasan) to the deficit participants' fund to cover claims, which is repaid from future surpluses
When a Takaful participants' fund faces a deficit, the operator must provide an interest-free loan (Qard) to ensure all valid claims are paid; this loan is repaid from future underwriting surpluses.
Question 3: How does Takaful investment of participant funds differ from conventional insurance investment?
- Takaful funds must be invested only in Shariah-compliant assets (equities, Sukuk, Murabaha, Ijara) and cannot invest in conventional interest-bearing instruments (Correct answer)
- Both invest in identical instruments including bonds and conventional banks
- Takaful can invest in alcohol and gambling sectors for higher returns
- Takaful funds must remain entirely in cash deposits
Correct answer: Takaful funds must be invested only in Shariah-compliant assets (equities, Sukuk, Murabaha, Ijara) and cannot invest in conventional interest-bearing instruments
Takaful funds are subject to Shariah screening; all investments must be in permissible instruments free from Riba, Gharar, and Maysir, ensuring that the entire Takaful operation remains Shariah-compliant.
Question 4: What is the role of the Shariah Supervisory Board in a Takaful company?
- To approve products, monitor operations, review investments, and issue annual Shariah compliance reports ensuring the Takaful company adheres to Islamic principles (Correct answer)
- To manage claims processing
- To set premium rates for participants
- To supervise the IT systems of the company
Correct answer: To approve products, monitor operations, review investments, and issue annual Shariah compliance reports ensuring the Takaful company adheres to Islamic principles
The SSB in a Takaful company provides ongoing oversight of all products, investments, and operations, issuing fatwas on new products and annual compliance reports to maintain Shariah integrity.
Question 5: Which UAE regulatory body supervises Takaful companies operating in the UAE mainland?
- Central Bank of the UAE (CBUAE) for Takaful, and previously the Insurance Authority (now merged into CBUAE) (Correct answer)
- Dubai Health Authority
- Ministry of Economy only
- ADNOC (Abu Dhabi National Oil Company)
Correct answer: Central Bank of the UAE (CBUAE) for Takaful, and previously the Insurance Authority (now merged into CBUAE)
The Central Bank of the UAE (CBUAE), following the merger of the Insurance Authority into the CBUAE in 2021, is the primary regulator for all insurance and Takaful companies operating in the UAE mainland.
Question 6: What is the concept of 'Takaful surplus' distribution and when is it applicable?
- At the end of an accounting period, if the participants' Takaful fund has more contributions than claims and expenses, the net surplus may be distributed back to participants as a reward for claim-free participation (Correct answer)
- Surplus is only distributed if the operator decides, with no rights for participants
- Surplus is automatically reinvested in conventional equities
- Surplus is always distributed equally regardless of individual contribution history
Correct answer: At the end of an accounting period, if the participants' Takaful fund has more contributions than claims and expenses, the net surplus may be distributed back to participants as a reward for claim-free participation
Takaful surplus distribution rewards participants who have not made claims by returning a portion of their Tabarru' contributions when the collective pool exceeds claims and expenses, reinforcing the mutual solidarity principle.
CIFE Takaful Insurance 2
What is 'Family Takaful' and how does it differ from General Takaful?