CIFE Takaful Insurance

Question 1

What is the fundamental principle underlying Takaful?

Accepted Answer

Mutual guarantee and shared responsibility: participants pool contributions to help each other in times of loss based on Tabarru' (donation)

Answer

Takaful is based on mutual solidarity; participants donate funds (Tabarru') into a collective pool from which claims are paid, ensuring shared responsibility rather than risk transfer to a commercial insurer.

Question 2

What is 'Tabarru'' and what role does it play in Takaful?

Accepted Answer

Tabarru' is a voluntary charitable donation each participant makes to the collective risk pool, which is used to pay claims and cannot be reclaimed as profit

Answer

Tabarru' converts the participant's contribution from a commercial premium (which involves Gharar) into a charitable donation, removing the element of uncertainty and speculation that makes conventional insurance impermissible.

Question 3

What are the two most common Takaful operating models?

Accepted Answer

Wakala (agency) model and Mudarabah (profit-sharing) model

Answer

The Wakala model pays the operator a fixed agency fee for managing the Takaful fund; the Mudarabah model shares underwriting or investment surplus between participants and the operator based on a pre-agreed ratio.

Question 4

In the Wakala Takaful model, how does the Takaful operator earn its remuneration?

Accepted Answer

By charging a fixed Wakala fee as a percentage of contributions for managing the Takaful fund on behalf of participants

Answer

In the Wakala model, the operator acts as agent and earns a predetermined percentage of contributions as its management fee, keeping the operator's income separate from the participants' risk pool.

Question 5

What happens to any underwriting surplus (excess of contributions over claims and expenses) in a Takaful fund?

Accepted Answer

The surplus belongs to participants and is distributed back to them or carried forward in the participants' fund, not retained as operator profit

Answer

Since Takaful participants own the risk pool through their Tabarru' contributions, any underwriting surplus belongs to them; it may be returned as a surplus distribution or retained for future claims in the participants' fund.

CIFE Islamic Finance Practice Test

CIFE Islamic Finance Practice Test

CIFE Takaful Insurance