1 Introduction

Many people, specifically Malaysian citizens, lack any understanding of Takaful. Some find it difficult to differentiate betweenTakaful and conventional insurance practices. This means that many Malaysian citizens have readily accepted the latter, which has led to major hurdles for most of the Takaful operators in Malaysia. The Takaful concept has existed since the time of the Prophet, so there is no reason or excuse to reject the practice of Takaful in today’s global business world. The concept of sharing and caring for each other should be a given. Allah mentioned and justified the practice of Takaful in Surah al-Mai’dah, verse two:

Help one another in furthering virtue and God consciousness (Taqwa), and do not help one another in furthering evil and enmity. (Al-Qur’an, Surah Maidah: 2)

The word Takaful is derived from the Arabic verb Kafala, which means to join or to merge and includes the concept of shared responsibility. This indicates that insurance plays a role in supporting the needy, and thus follows the principle of Islamic Shari’ah. The practice of Takaful in Malaysia can be divided into two types. The first is FamilyTakaful, which is Islamic life insurance. The second is General Takaful, or Islamic general insurance. The Personal Accident Takaful Scheme is one of the General Takaful products, which is also a type of short-term policy. In this chapter, we will be discussing the Personal Accident Takaful Scheme and highlighting some of its main points and concepts. This will help us to gain a clearer view of the concepts of Takaful and practices within the Malaysian insurance industry. In addition, some comparisons will be made between Takaful and conventional practices. This will help to educate Malaysian citizens about the benefits of Takaful.

2 Shari’ah Rulings

Shari’ah gives clear guidance in respect of what is lawful and unlawful based on the teachings of the Qur’an and the Sunnah (I. Doi, A. R. 1994). It is not human beings who decide what is lawful or unlawful. Everything is presumed to be lawful unless it is specifically prohibited by the Shari’ah rulings. This is based on the following verse of the Qur’an:

It is He (Allah) who has created for you all things that are on earth. (Ali 1994)

It is lawful for a Muslim to practise Islamic insurance as long as it does not contravene the Shari’ah principles. There are some Islamic principles that make the Takaful scheme permissible. It is in agreement with the basic principle of Takaful, which encourages the practice of moral values and virtuous attitudes.

Help you another in the righteous and piety, but help you not one another in sin and rancor; fear God; for God is strict in punishment. (al-Qur’an 5:2)

2.1 No Riba Culture

Takaful or Islamic insurance is a financing scheme that is based on Al-Qur’an and Sunnah and includes the concepts of brotherhood, solidarity and mutual co-operation. Takaful is free from Riba (usury), gambling, uncertainty, unlawful elements and many other things that are prohibited by Islam. Allah said in Al-Qur’an (Ali 1994):

O ye who believe! Devour not usury, doubled and multiplied; but fear God; that ye may (really) prosper. (3: 130)

O ye who believe! Intoxicants and gambling, (dedication of) stones, and (divination by) arrows, are an abomination, – of Satan’s handwork: eschew such (abomination), that ye may prosper. (5: 90)

In these verses, Allah prohibited the practices of usury and gambling. Takaful is free from all Islam’s prohibited elements.

  • Islam encourages us to seek cures for illness.

  • No Gharar.

In addition, Takaful is based on some of the Islamic practices.

2.2 Al-Tabarru’

Al-Tabarru’ is a gift or donation, which is one of the main principles in Takaful. In the Manual of Principles and Practices of Takaful and Re-Takaful, the author defines Al-Tabarru’ as “synonymous idea to and similar legal consequences with al-Sadaqah (charity), al-Hiba (gift), and al-Khairat (donation), wherein anything once given away as donation in favour of something or someone, the donated property cannot generally be retracted. The donor automatically loses title over the donated property soon after it is made as al-Tabarru’ or al-Sadaqah or al-Hiba or al-khairat.” In Takaful, the amount that is paid by the participant is divided into two accounts, which one of these accounts is based on this concept, which it is considered as al-Sadaqah and cannot be redeemed back by the participants. This amount is given to any other participants that deserve to receive the money.

2.3 Al-Mudharabah

Al-Mudharabah or profit and loss sharing is a widely used practice in Takaful. Takaful operators have adopted this practice, in which one party, called Rabbul Mal, provides money or fund to the other party, called Darib. Darib is the person or party who manages the money or fund by investing or doing business with the money, in the hope of generating profits. Based on Al-Mudharabah practice, both Rabbul Mal and Darib have to share the profits or losses from the money that has been invested.

2.4 Al-Wakalah

Al-Wakalah, or agency, is another Islamic principle that is used in Takaful. This is a kind of contract where a party delegates his business to another party. In Takaful, al-Wakalah means that participants ask the operator (Wakil) to use their skills to insure participants’ property or anything else.

2.5 Al-Musyarakah

Al-Musyarakah is a principle that is based on partnership: in Takaful operations, both participants and the Takaful operator are considered to be partners, and their contracts are based on partnership. In Al-Musyarakah, both parties must contribute in order to form a partnership. In Takaful, participants contribute their money and the Takaful operator contributes their skills by ensuring financial security against a defined risk.

3 The Scheme Outlook

3.1 Scope of Cover

The Personal Accident Takaful Scheme can be categorized under three headings:

  • Personal Accident Takaful (PA).

  • Group Personal Accident Takaful (GPA).

  • Group Personal Accident (Short Period).

The scheme covers personal accidents for individuals aged between 18 and 65. The scheme also compensates the person covered in the event of:

  • Death.

  • Permanent disablement.

  • Medical expenses.

3.2 Death

There are two types of cover under this heading:

  • Immediate death.

  • Death up to six months from the date of the accident (caused by fire, lightning strike or underground fire).

3.3 Permanent Disablement

The scheme covers permanent disablement caused by accident. An accident can cause an individual to lose his or her job, and the victim might no longer be able to do anything at all. This permanent disablement should not be for less than six months. Temporary Total Disablement and Partial Disablement are also covered.

3.4 Medical Expenses

Takaful Malaysia pays medical expenses for an individual who is involved in an accident.

Additional cover can be provided under the scheme, but this is only valid if the policyholder pays an additional amount. The cover includes the following:

  • Driver and passengers.

  • Dangerous sports such as mountaineering, underwater activities, hunting.

  • Use of woodworking machinery.

  • Air travel other than that allowed by the standard cover.

4 Ratings

The ratings are further summarised and explained in Table 22.1.

Table 22.1 Personal Accident Takaful (PA)
Full size table

4.1 Extra Loading to Be Charged for Additional Extension of Cover Requested

Hunting

10%

Polo and horse riding

10%

Water skiing

10%

Woodworking machinery

10%

SRCC

10%

Age > 65

75%

Mountaineering and scuba diving

30%

4.2 Group Personal Accident Takaful Scheme (GPA)

In the Group Personal Accident Scheme, a group discount is allowed if the number of persons covered exceeds ten. The maximum discounts allowed are summarised in Table 22.2.

Table 22.2 Group Personal Accident Takaful Scheme (GPA)
Full size table

Should the majority of people covered belong to the named occupation class, such occupation shall be recognized as the occupation class of the group:

Minimum Takaful contribution

PA

RM 25.00 per certificate

GPA

RM 50.00 per certificate

GPA (short period)

RM 50.00 per certificate

4.3 Group Personal Accident Takaful (Short Period)

For a GPA Takaful scheme (Short Period), standard cover would be offered as noted in Table 22.3.

Table 22.3 Group Personal Accident Takaful (short period)
Full size table

Notes:

  • The age limit for GPAQ is 16–65 years (except for schools schemes). Group discount may be given after any personal discount.

  • GPA is to be issued only if the full name of the people covered (including I/C number) has been submitted to the company. Cover based on position must be referred to the Underwriting Department.

  • Limit for conveyance for known accumulation is RM 3000.

  • There is a 5% service tax for company and a Stamp Duty rate of RM 10.00.

5 Occupation

The profession or occupation of an individual is a primary factor in determining the risk and probability of an accident. All of the cover schemes can be classified according to these classes, except for the Travel Personal Accident Takaful. The occupation classes follow.

5.1 Class 1

Individuals who work in professional, administrative or any personnel roles but are neither supervising nor engaged in manual labour. Examples include accountants, clerks, lawyers, doctors, nurses, dentists, surgeons, architects and teachers.

5.2 Class 2

Individual supervising but not actually engaging in manual labour, such as mine managers, foremen, planters, contractors (not working themselves), clerks of work, industrial clerks, printers, storekeepers, tailors and waiters.

5.3 Class 3

Those who are either engaged in or with manual labour, for example bus conductors, drivers, carpenters, electricians, farmers, fishmongers, hawkers, mechanics, plumbers, rubber estate workers and sales assistants. The maximum sum insured per person is RM 50,000.

6 Limitation to Benefits

  • Death, Permanent Total or Permanent Partial Disablement must occur within twelve months of bodily injury.

  • Weekly compensation may be considered for group participation by a corporate body.

  • Compensation payable for the period of Temporary Total or Temporary Partial Disablement either separately or together shall not exceed 104 weeks, depending on the injury.

  • Besides that, compensation payable under Temporary Total Disablement will not exceed 75% for Class 1 and 2 and 50% for Class 3 of the person’s covered weekly earning.

  • The sum of the cover payable under Temporary Partial Disablement should not exceed 50% of that payable under Temporary Total Disablement.

  • Medical expenses (up to a maximum limit of RM 5000 for Class 1 and RM 3000 for Class 2 and RM 1000 for Class 3).

  • All the sum-covered life (death) for all cover (PA/GPA) shall not exceed 60 times a person’s covered monthly income (or five times annual income).

  • Any compensation payable under Permanent Disablement Benefit shall be reduced by the amount of compensation already paid under Temporary Disablement Benefit in respect of the same injury.

  • The aggregate of all percentages payable in respect of any one accident for any period of Takaful shall not exceed 100% of the capital sum covered.

7 Underwriting

7.1 Diseases and Physical Disabilities

A person who suffers from certain physical disabilities or who has a history of certain illnesses may be described as a poor risk. Extreme care must be taken in order to deal with a proposal that discloses any physical illness, especially when it is revealed that the individual has suffered from any infirmity or deformity that may affect agility or may increase the disability in the event of an accident.

7.2 Abnormal Risk

Abnormal risks that can be acceptable subject to special terms are listed below. In all cases, the clients must submit their proposal to the Underwriting Department for further inspection, together with a copy of medical reports that detail the extent of the disabilities.

7.3 Blindness in One Eye

If the condition is long standing and sight of the other eye is sound, the risk can be accepted subject to a loading of 25%, with an endorsement that in the event of loss of the remaining eye compensation will be paid to the client on the basis of loss of sight of one eye only, or 50% of the benefit available.

7.4 Loss of One Arm

For the loss of one arm the rate should be loaded by 25%, and with the endorsement that the loss of the other limb will comprise compensation on the basis of loss of one arm only, or 50%.

7.5 Deafness in One Ear

If the other ear is sound, acceptance is normally on normal terms, subject as usual to the endorsement that loss of the other ear will be covered on the basis of the loss of one ear.

7.6 Ambiguous Occupation

This occurs when the occupation stated is unclear (ambiguous). For example, the Director or Merchant, the subordinate must be determined from the prospective participant. In addition, the job description must be clear and accurate to ensure the correct rates are charged and to avoid any probability of rejecting a claim owing to misrepresentation.

8 Conclusion

To conclude, the Personal Accident Takaful Scheme gives many benefits to its participants, especially those who are in need or have been involved in an accident. It is indeed an alternative method by which society can shoulder the burden of unpredicted occurrences. Moreover, the scheme covers many aspects such as death, permanent disablement and medical expenses. It follows Shari’ah teachings and is free from elements that are forbidden. Takaful Malaysia still needs to improve its existing products in order to be able to compete with conventional insurance companies. More promotion should be done to attract more participants. The registration fees for the products should also be revised in order to stimulate higher demand. Currently, the main issue is to be able to educate society at large about Takaful products and how Takaful operates.

We believe that Takaful operators in Malaysia have a bright future. It may be possible to apply Takaful practices and thereby bring the principles of Islam more to the fore. Takaful is to ease people’s lives and to take away their burdens and distress.

References

  1. 1.

    Ali, A. Y. (1994), The holy Qur’an; Text and Translation, Islamic Book Trust, Kuala Lumpur.

  2. 2.

    Personal Accident Takaful Models, Takaful Malaysia, Takaful Nasional, Takaful Ikhlas and others.

  3. 3.

    I.Doi, A. R. (1994), Shari’ah the Islamic Law, A.s. Nordeen, Malaysia, P. 407.

  4. 4.

    Product Application of Takaful Malaysia and Takaful Ikhlas.