Takaful

ISB 657: Principles and Practice of Takaful

TAKAFUL INTERMEDIARIES, NOMINEE, AND BENEFICIARIES

PREPARED BY:

WAN NUR HASYIMAH BINTI WAN HANAFIJULIANA BINTI TAJUDDINROHAIDA BT AB RAHMANSITI NUR NADHIRA BT MUHAMMAD NAFIZONSOLAHHIAH BINTI SHUIB

PREPARED FOR:MADAM IRA MAZLIANA MOHD ATAN

Table of content:1.0 Introduction

2.0 Takaful Intermediaries

3.0 Nominee

4.0 Beneficiaries

5.0 Conclusion

1.0 Introduction The takaful market is considered one of the fastest growing service industries, although it still needs to work on further improvements.

Due to its growing demand, the takaful industry seems to have a bright future awaiting it. Takaful stakeholders consist of the takaful operator, participants, nominees and beneficiaries.

All these parties are dependent on each other to ensure the smooth running of a takaful practice.

2.0 THE INTERMEDIARIES OF TAKAFUL In an insurance practice, the insurance

intermediaries, such as the agent and the broker play an important role in promoting insurance practices at the social level.

This can be shown that, the agent and the broker in insurance practices can contribute towards making insurance practices sound.

So, it is therefore suggested that the agent and the broker should not be neglected, but must be regarded as the promoters and also part and parcel of the company in all aspects of its business.

Sources from Al-Quran & Hadith

The agent and the broker are known in Islamic Jurisprudence as al-wakil. The word al-wakil appears in the Holy Quran about twenty four times. For example Allah S.W.T

Aيال< وCك EهGذAخJ فCات CوEه JالA إ CهSC Aل إ Cال

There is no God but He: take him therefore for (thy) disposer of affairs.( Surah al-Muzzammil, 73:9)

Cont…The Holy Prophet S.A.W also appointed

Hakim bin Khiram as his agent for purchasing a camel for sacrifice. On another occasion the Holy Prophet S.A.W appointed Amir bin Aum as his (the Holy Prophet’s) agent for concluding the marriage between his mother and the Holy Prophet (S.A.W).

Al-Murginani stated that it is lawful for one to appoint an agent to act on his behalf.

Cont…The importance of having an agent and a

broker in an Insurance practice should not be ignored as they may contribute to the better propagation and promotion of insurance practices in all levels of society.

The position and the benefits of having an

agent and a broker in an Islamic insurance practice while relying on the principles of al-wakalah, and al-mudharabah financing.

Law governing on the Agents and Brokers in Takaful

• No Takaful broker shall in the course of his business as such negotiate any contract of Takaful with an operator other than an operator entitled under the Act to carry on Takaful business in Malaysia.

• A takaful broker needs to be licensed by the Director General and is a member of an association of Takaful brokers approved by the Minister.

Types of Intermediaries

1)Agent (Wakil) The duty of an agent may include the

propagation of insurance practices, using correct information to explain to people the importance of having an insurance policy, and filling the proposal form for the person who wishes to buy the policy and before the buyer signs the proposal form.

Islamic insurance is operated based on the principles of al-mudharabah profit and loss sharing financial system.

Islamic insurance is operated based on the principles of al-mudharabah profit and loss sharing financial system.

Cont… In an insurance practice, the agents work for the

company in that they are promoting the image of the company.

Each agent’s share of profits need not necessarily be the same, but may vary depending on their performance i.e according to the number of policyholders they obtain and amount of contributions they earn for the company

Cont…2) Broker (Wasit) A broker in an insurance practice is also a kind of

agent but he is slightly different from the agent who works for the insurance company.

An agent is appointed by the company (operator) and works on its behalf, but a broker on the other hand, is appointed by the policyholder (participant) to work on the participant’s behalf.

A broker handles two responsibilities :

Cont…i) He works for the participant and provides necessary counselling for

the participant.

ii) He also working for the company in promoting the company’s business through finding and convincing the policyholder to buy a policy from the operator.

Therefore, in principle the broker is an agent for the participant, in practice he (the broker) is an agent for both the participant and the operator.

The obligations of a broker towards the participant are inter alia, to procure an insurance policy on behalf of the participant, to negotiate the policy, by finding a suitable market with low contributions, filling in the proposal form with correct information, disclosing the material facts or matters affecting the policy, handling contributions, counselling the insured for any matter relating to the policy and assisting him (participant) with any form of help that the participant seeks relating to the policy and also benefits to be derived from it.

Cont… Meanwhile, the obligations of the broker towards the operator

are basically to provide correct information about the company to participants, find better policyholders for the company, and disclose any material facts or matters to the company.

The benefits available to brokers in insurance practices may be slightly more than those available to an ordinary agent who works on behalf of the company itself. For a broker, the nature of benefits depend on the principles of al-wakalah, and also al-mudharabah financing.

The broker who is appointed by the participant to become his agent because he provides the participant proper counselling and other forms of assistance relating to the policy

Cont… For this sort of service offered by the broker to the participant,

the broker has the right to demand a reasonable service charge from the participant.

The broker also works for the operator by finding policyholders who is interested in buying the policy from the operator and in this capacity works to promote the company’s business.

The broker’s benefit from the company may not be the same for all brokers, but may vary depending on the number of policyholders and the amount of contributions that each broker manages to procure for the operator.

3.0 Nominee

Nominee is the trustee and the governing principles of nominee under Islamic law could be derived from the doctrine of al-amanah.

Nomination is the act of naming a person to receive policy moneys payable in the event of the death of the policy owner

• I) person in entrusted or nominated to hold the property of the minor as a trustee:

Make a trial orphans until they reach the age of marriage, if then you

find sound judgment in them, but consume it not wastefully....(An-Nisa

verse 6)

II) Allah(swt) commanded not to betray the trust. Allah(swt) said :

O you who believe betray not the trust of Allah and the messanger, nor

misappropriate knowingly things entrusted to you.(Al-Anfal,verse 27)

if the nominee in a policy is regarded as the owner of the policy, it may contradict the Divine principles relating to al-mirath and al-wasiyah

nomination in a policy is necessary and the benefit would be

obtained by the nominee in the policy as al-hibah

situation is regarded as a gift which is not in accordance with the

Islamic principles because of several factors:

i. gift is not perpetual in nature but in conditional one

ii. nominee is given an opportunity to nomination,it may deprive the legal heirs of the policyholder and contrary to the principle of al-mirath

iii. policyholder can nominate to others simultaneously of one third and not more than that.

Quran

nominee is a trustee and does not have any right to benefit from the trust but

instead is under an obligation to hold the trust properly and render it back to the

right beneficiary accordingly without demanding any interest from the trust

Nominee should be regarded as as a mere trustee who is nominated to distribute of

the benefits under the policy fairly among the beneficiaries.

Islamic scholars views

Policyholder can nominate someone for the security and fair distribution of the

benefit under the policy according to the principle of al-mirath and al-wasiyah.

Evidences:

In Re Ismail b Rentah deceased, Malay Public Servants Co-operative Society Ltd nominated his own daughter to receive his shares in case of his death. The nomination in this case relying in the principle of al-mirath and al-wasiyah.

Karachi High Court decided that the nomination in a policy

does not constitute a gift nor a bequest, and therefore a

nomination shall not deprive the legal heir of the insured who

may be entitled to the benefits of the policy under the law of

al-mirath

A beneficiary must have an insurable interest in the policy and simultaneously be nominated by the policyholder in the policy.

Policyholder has sole ownership of the benefits under the policy while he is living unless he creates a waqf out of the policy.

The benefits from an insurance policy would be regarded as the property of the policyholder, as long as the policyholder still alive.

After the policyholder is dead, the benefits would be disbursed and distributes to the rightful persons relying on the principle of al-mirath (inheritance) and al-wasiyah (bequest).

4.0 Beneficiaries

the rights of the beneficiary under any kind of policy should go first to the policyholder who pays regular contributions as

saving for the future security against unexpected risk

two conditions that terminate the policyholder to have the right of the beneficiary over the benefit of the policy.

First condition:

if the policyholder creates a waqf or charitable trust out of the policy, then the

waqf becomes the property Allah. waqif has no right to hold onto the

ownership of the policy or to seek the benefits from

it.

Second condition:

if the benefits under the policy are subject to the

settlement of participant’s debt then, once the

participant dies, the rights of beneficiary over the

benefits of the policy may move from the

policyholder to the following procedures

Procedures :

the total benefits to be obtained under the policy would be calculated together with the other legitimate wealth of

the policyholder.

If the policyholder has the debt during his lifetime and it is remain unsettled at his death, then the amount of

debt would be deducted from the policyholder’s properties.al-Quran:

“The distribution in all cases is after the settlement of will

(made during the life time of the deceased) and debts” al-nisa ,4:12

The Holy Prophet also said: “Settle the debt of the deceased before his funeral”

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After settlement of the debts, his funeral expenses should be deducted from his remaining properties. Shaikh Mohammad Abduh expressed in one of the fatwa session that it is necessary under shariah law to separate the funeral expenses of the deceased from the remainder of his property.Deduct the portion given away in his lifetime as al-wasiyah

(will) from the policyholder’s remaining property. A will is enforceable only up to 1/3 (one-third) of the total property.found in the saying of the Holy Prophet:

“Narrated by Amir bin Saad bin Abi Waqqas , he said that: I was taken very illduring the year of the conquest of Macca and felt that I was about to die. The

Prophet(s.a.w.) visited me and I asked: ‘O’ Messenger of Allah (s.w.t.) I own a good

deal ofproperty and I have no heir but a daughter. May I make a will, leaving all my

wealthfor the cause of religious and charitable activities? The Prophet (s.a.w.)

replied:“No”. Again I asked: May I do so in respect of 2/3 of my property? He (s.a.w.)replied: “No”. I asked may I do so with 1/2 of it? He (s.a.w.) replied: “No”. I

againasked:May I do so with 1/3 of it? The Prophet (s.a.w.) replied: Make a will

disposingof 1/3 in that manner because 1/3 is quite enough (of the wealth that you

possess)For it is better for you to leave your offspring wealthy than to leave them poor,

askingothers for help.”

(Sahih al-Bukhari)

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to distribute the remaining properties of the deceased policyholder among his heirs according to the principle of al-mirath.

Allah rules: 

“From what is left by parents and those nearest related (next of kin),

there is a share for men and a share for women, whether the property is small or large a determinate

share”

Holy Prophet said:“Narrated by Ibn Abbas (ra), the Holy Prophet said: a will

in favour of an heir is not permissible unless when the remaining heirs consent to it.

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5.0 CONCLUSION

The validity of the subject matter of a policy under common law is subject to the conditions

out by case law, statutory provisions, equitable principles and customs.

The degree of risk against the subject matter of a policy is viewed differently. The common

law requires a pure risk, but Islamic law requires the risk to be a defined one. The

subject matter, against which the risk is presumed, also differs in both legal systems.