FAQ
Question 1. What is "Takaful Ta'awuni"?
Answer: Takaful Taawuni is a collective effort, consistent with Sharia guidelines, by
members of a group to share any harm or loss that may befall any member of the
group. Takaful Taawuni emerged from an ancient practice on the Arabian peninsula
of mutual cooperation and assistance among members of a tribe. The root word
"Kafala" means to guarantee and Takaful (a noun) is derived from the verb "Takafala"
which means committing one's self to avert the loss of somebody. "Ta'awun" means
mutual assistance-helping our fellow muslims, either by aid, support or monetary
help. Therefore, a Takaful system is a group of individuals who contribute
collectively in order to share the harm or loss that may fall upon any member of the
group.
Question 2. Is all insurance Haram and prohibited in Islam because Risk Protection
(insurance) is against Tawakkul, a total dependence upon Allah (swt)?
Answer: No, because no human action changes the Will of Allah (swt) for our
destiny. Whether a person has insurance/Takaful or not has no effect on future events.
However, we are urged to take precautions…..just as we make provisions prior to
starting our journey. In Hadith narrated by Anas bin Malik when an Arab Bedouin
asked Prophet Muhammed (PBUH), "Shall I leave my camel untied and seek Allah's
protection on it, or should I tie it?" The Holy Prophet replied, " Tie your camel and
then depend upon Allah (swt)." [as quoted by Sunan at Tarmizi, 1981]
Question 3. What are the key elements of Takaful Ta'awuni?
Answer: A Takaful system of risk protection consists of the following elements:
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Sharia compliance in Takaful operations and investments
Financial and Risk sharing under the principle of Ta'awun
Contract Holders are owners of the "common risk pool"
Contributions include Tabarru', or donations for mutual assistance to the needy
members of the group
Application of ethics and full disclosure
Question 4. How does Takaful Taawuni (Islamic Life insurance) differ from
conventional life insurance?
Answer: Major differences include:
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Application of mutual or cooperative risk-sharing principles incorporated into
the ne'aa, or intentions, of the Takaful Participant
Participants bear the risk of loss rather than a stock company
Participants gain from any surplus from annual operations · Eliminates Al
Gharar or uncertainty
Motivation is not a commercial transaction with a profit-maximizing motive;
rather mutual assistance for the community well-being and to achieve a self-
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sustaining Takaful operations.
Investment of premiums into Shariah-approved securities.
Charitable donation from surplus, if any, can be elected.
Question 5. How does BAJ invest my contributions?
Answer: All investment instruments and funds are Shariah compliant and approved by
both BAJ's Permanent Sharia Advisory Committee and Saudi Arabian Monetary
Agency (SAMA). Contributions to a Takaful Taawuni Plan that consists of an
investment component [such as Education Plan, Retirement Plan, Waqf Plan, etc] are
directed into either an Investment Strategy or an individual Investment Fund. Clients
may select from three Investment Strategies: (a) Conservative, (b) Balanced and c)
Growth, that suits their long-term financial goals. Alternatively, clients may choose to
place funds into one of BAJ's four equity mutual funds, or its Murabaha fund. These
funds are professionally managed by either Bank Aljazira or well-respected
investment managers.
Question 6. Who owns the Takaful Ta'awuni fund?
Answer: Takaful Ta'awuni fund or "pool" of funds is actually owned by the
Participants who join in one of several plans on offer. Under a contractual
arrangement, Bank Aljazira acts as a "Wakeel" or agent on behalf of the Participants
to manage the Takaful Taawuni 'pool' and business operations. While Bank Aljazira
provides both insurance, operational and investment expertise in the management of
Takaful operations, Bank Aljazira does not assume any risk resulting from Takaful
operations.
Question 7. How do I pay for a Takaful Ta'awuni Plan?
Answer: To initiate a Takaful Ta'awuni Plan, you may arrange for a convenient
automatic payment deduction from your bank account, or pay by check. Installments
for your Takaful Ta'awuni Plan may be made monthly, quarterly, semi-annually,
annually or in one lump sum in order to match your financial resources.
Question 8. How does the Takaful Ta'awuni Model actually work?
Answer: A Participant's contribution is handled by Bank Aljazira in one of two ways:
(A) contribution to a Participant's Individual Reserve Investment Account (IRIA) in
the case of Risk-only Protection products, or (B) contribution to a Participant's
Individual Investment Account (IIA) in the case of savings and investment products
which also consist of a chosen level of protection. As funds are needed on a monthly
basis to cover risk charges, Wakala fees and/or for investment purposes, a
Participant's account is debited and monies are transferred to a Takaful Ta'awuni
Account (TTA), a major portion of which is a Tabarr'u (donation), to the operator as
wakala fees or to the investment funds selected by the Participant, as appropriate.
Question 9. If I need a sum of money at some point in the future for Marriage, for
College Education or to retire comfortably, how can Takaful Taawuni Program help
me?
Answer: There are a range of Takaful Investment Plans to assist you-Retirement Plan,
Ladies Savings Plan, Marriage Savings Plan, and Capital Plan. For example, the
Takaful Taawuni Retirement Plan is an ideal and convenient way to set aside savings
on a regular basis which is invested long-term to assist you in achieving financial
independence. Based upon your current earnings and your financial goals for
retirement, a plan can be designed that includes growth for the funds committed to
investment as well as risk protection for your family throughout the plan period, in the
event of death or disability [God forbid].
Question 10. If I need risk protection for me and my family for a limited period, how
can Takaful Taawuni help me?
Answer: There are a range of Risk-only Plans [ Level Term, Increasing Term and
Decreasing Term ] to assist you with a fixed or variable level of protection in the
event of death or disability that can be provided to your family or Beneficiary. Riskonly protection for a fixed term is ideally suited to match a temporary indebtedness or
substantial financial obligation that can be fully paid rather than become a burden on
your family. Contributions can be made on a level, an increasing or decreasing basis
to match your financial resources or your risk protection requirements.
Question 11. How does Takaful Ta'awuni complement from GOSI insurance (General
Organization for Social Insurance)?
Answer: GOSI is a mandatory social insurance program sponsored by the
Government of Saudi Arabia which is funded by deductions from wages of
expatriates and Saudi nationals. GOSI mandatory payments are 2% of gross wages for
Occupational Hazards and 15% of gross wages (divided 6% for insureds and 9% for
employers). GOSI's compensation relates only to injuries, illnesses or death directly
linked to employment. Hence, compensation for death by natural causes is excluded.
Compensation by GOSI for Occupational Hazards on the job is an allowance of 75%
of monthly wages for injuries or temporary/permanent disability, and for Old-age
Annuities an amount which is 2% of the average monthly wages multiplied by the
number of years insured by GOSI [viz. pay in over 20 years, last average monthly
salary of 10,000, then GOSI stipend per month is 4,000. When the Annuitant dies, the
GOSI payments cease. The key features of each program are :
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Compensation by GOSI is geared to a person's average monthly salary.
Takaful Ta'awuni Plan pays the sum assured and/or the accumulated savings
as established by the Plan Holder.
Compensation by GOSI is paid to wage earner and ends with his death.
Takaful Ta'awuni Plan pays the Plan Holder at the time of Maturity or pays
the heirs or Beneficiary in the event of death [god forbid] as a lump sum or
continuing annuity until funds are exhausted.
Funds contributed to Takaful Ta'awuni are owned by the Plan Holder at all
times and may be directed into funds chosen by the participant.
GOSI contributions belong to the State Authority.
GOSI contribution is fixed and compulsory.
GOSI is compulsory and important social insurance system operated by the
govt of KSA. Takaful Ta'awuni is flexible and discretionary system which
complements GOSI and provides additional benefits to its members.
Question 12. If I have a large cash balance in my bank, in addition to many real estate
and other properties, what value-added could I obtain from Takaful Ta'awuni?
Answer: Takaful Ta'awuni is a long-term financial plan. Most probably a participant
will live to encash the net asset value of his plan, which is value-added to your
existing investment, besides the additional protection that your customized plan can
provide to your family and loved ones.
Question 13. How do I join the Bank Aljazira Takaful Ta'awuni Program?
Answer: Anyone may join the Takaful Ta'awuni Program-young or adult, Saudi
national or expatriate. Participation begins with completion of an Application form
and submission to Bank Aljazira, or to one of our friendly Takaful Ta'awuni Financial
Consultants available at the headquarters or through the Branch office. There is no
special membership fee. Interested persons can contact us through many channels:
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Through your local Bank Aljazira branch
Bank Aljazira Head Office: 651 8070 Ext.: 2007
Toll free number 800-244-0959
E-mail: infotakaful@baj.com.sa
Or for more information visit us at www.baj.com.sa and www.takaful.com.sa
We look forward to welcoming you as a participant in Bank Aljazira's Takaful
Ta'awuni Program.
http://www.baj.com.sa/takaful/m7sub2.asp
Models
Bank
Aljazira
( BAJ )
Takaful
Model
Bank Al Jazira (BAJ) having reviewed many of the Takaful models in
operation worldwide has decided to propose the following model. This
model is based on the Ta'awun concept and Wakalah contract.
In the context of takaful, ta'awun meaning mutual help allows
participants make donations with the intention of helping one another
within the takaful group. The elements underpinning the ta'awun the
ta'awun concept as applied in takaful, can be broken down into the
following:
1) Mutual responsibility
2) Mutual cooperation
3) Mutual protection
All these principles are based on the Quran and the Sunnah.
1 ) Mutual Responsibility
The feeling of responsibility towards one another is the foundation of solidarity
of Islamic community. The poor feel safe being sheltered by the rich and the sick
do not feel much hurt because they know the healthy will provide help. This
principle is established through the following hadith:
"The attitude of the believer and feeling of brotherhood to one another is like that
of the single body. When one member of the body is hurt, it will have an effects
on the whole body." (Mutafaq 'alihi).
" The relationship between one believer and another (in a community) is like that
of a building where one part of the building strengthens the other parts."
(Mutafaq 'alaihi).
"Each one of you has a responsibility and each one of you is responsible towards
those under your responsibility." (Mutafaq 'alaihi).
"One is not judged as righteous until he cares for his brother as much as he
cares for himself." (Bukhari).
"If any one does not have compassion towards others then he does not get any
compassion from God". (Mutafaq 'alaihi).
2 ) Mutual Co-operation
The principle of cooperation is established both through the Quran and the
Sunnah. Some of the Quranic injunctions are:
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"Help one another in furthering virtue and God-consciousness
(taqwa), and do not help one another in furthering evil and enmity"
(Quran 5:2).
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It is not righteousness that you turn your faces towards east or west
but righteousness is whoever believes in God and the Last Day and
the angels and the Book and the messengers; and spending out of his
wealth for His love towards kin, and orphans and the poor and the
wayfarer and those who ask and the freeing of slaves and those in
debt; to be steadfast in prayer and practice regular charity; to fulfil
the contracts which you have made; and to be firm and patient in pain
or suffering and adversity and throughout all periods of panic. Such
are the people of the truth, the God-fearing." (Quran 2:177).
The Sunnah has also established the principles of co-operation. Some of the
hadith that urge cooperating are:
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A Muslim is the brother of a fellow Muslim. He should neither commit
oppression upon him nor ruin him; and he who meets the needs of a
brother. God will meet his needs and he who relieves his brother from
hardship Allah will relieve him from the hardness to which he could
be put on the day of judgement (Muslim).
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Whosoever fulfils the intention of a brother, God will fulfil his
intentions. (Ahmad & abu Daud).
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God always help those who helps his brother (Abu Daud).
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Help your brother either those oppressed or those who oppress. The
companions ask "Oh Messenger of God, we understand about helping
the oppressed how do we help those who oppress?" The Messenger
replied "relieve them of their power." (Mutafq 'alaihi).
3 ) Mutual Protection
This principle is established by both the Quran and the sunnah. The Quran
mentions in several places regarding protection from hunger and fear. The
Quran Says:
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"(He) who has fed them against hunger, and has made them safe from
fear." (Surah Quraish verse: 4).
"And remember when Abraham said "My Lord, make this city
(Mecca) a place of security." (Quran 2:126).
Some of the hadiths that discussed protection are as follows:
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"Indeed a believer is one who can give security and protection to the
life and property of mankind". (Ibn Majah).
By God in Whose power I am under, one will not enter paradise
unless he provides protection to a neighbor in difficulty." (Ahmad).
Aishah reported that The Prophet of God (s.a.w.) said, "Jibrail
impressed upon me the kind treatment towards neighbors so much
that I thought as if he would confer upon them the rights of
inheritance."
"A person is not a believer if he sleeps comfortably on a full stomach
while his neighbor suffers from hunger". (Al-Bazzaar).
Wakalah (Agency)
In this modern and complex financial world many skills are required to
successfully manage a takaful operation. By management one would include
ensuring that the rights of the participants in the mutual fund are protected.
What follows is a sample of what a takaful operator should do so as to run a
successful takaful operation. This is not meant to be an exhaustive list:
1. Promote participation of new members (e.g. via advertising). Takaful
is not sold but participation is invited.
2. Explain the concept of a takaful cooperative to the masses
3. Set up a proper administrative system to run the takaful program
4. Keep records of newly registered members
5. Maintain records of all participants in the event there is a change in
information about a member
Invest the donations in halal investments
Develop new takaful products to meet the needs of participants
Maintain statistical information and perform experience studies
Determine the appropriate contribution to be made by each member
such contribution shall be determined actuarially to enable an
adoption of an equitable and fair charging to all members
10. Pay takaful benefits when a participant makes a claim
11. Prepare the balance sheet, revenue accounts and other financial
statements - to enable public accountability of the management
12. Perform actuarial valuation to determine the surplus of tabarru' at fund
13. Distribute the surplus equitably to participants
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The question that comes to one's mind is : who will carry out such
responsibilities with effectiveness, accuracy and efficiency? One option is
that it could be performed by volunteers who are members of the takaful
program. Alternatively, it can be sourced out to a third party who possess the
skills, qualifications and experience to handle such a complicated job.
Under the first alternative, volunteers
who are existing members of the
takaful program may help carry out the
above functions on a charitable basis.
As the takaful fund gets bigger, and as
more and more people enter into the
takaful program, the administrative
activities will become more
complicated and cumbersome to the
extent that there is need to seek
assistance from an outside party to
ensure that the takaful operation is run
in the most efficient, productive and
professional manner for the benefit of
the members. Thus, an entity who
possesses the necessary expertise in
running the takaful program needs to be
established. Islam permits the
establishment of such entity with the
view of administering the takaful
program under the concept of wakalah.
According to the Encyclopedia of
Islamic Banking and Insurance,
wakalah is a concept of a businessman
entrusting another to act in his stead or
as his representative. It has been a long
standing custom to appoint an agent to
facilitate trade operations. The
Encyclopedia of Islamic Banking and
Insurance further elaborates conditions
which must be met under wakalah.
Some of these conditions are:
1. The essence of the appointment
of an agent (wakil) is the
proposal and acceptance of the
position
2. It is a condition that the person
who appoints an agent be
legally competent to do the
work for which the agent is
appointed. Thus an insane
person or an infant cannot
appoint an agent.
3. A person can appoint an agent
to conduct all business
transactions that he would be
able to do personally. Thus, it is
lawful to appoint an agent for
selling or buying, letting or
hiring, giving or taking a pledge
for depositing or receiving a
thing for safe keeping, making
or receiving a gift, making a
compromise, bringing an action,
paying or receiving a debt and
for receiving anything.
4. An agent appointed to sell and
buy or to pay or receive a debt,
is a custodian of his principal's
property and in the position of
an amin (rustee).
5. An agent is entitled to receive
remuneration only when so
contracted.
The rationale behind the concept of
wakalah can be seen from the following
arguments:
1. It is difficult for takaful members to voluntarily carry our the
administrative works as the scheme gets bigger.
2. To set up a takaful operation system during the initial phase of the
program requires heavy expenditure on the part of members. The
question now is whether all members agree or can afford to contribute
towards meeting this high start up cost.
3. During the early phase of implementation, it is possible that claims,
retakaful cost and expenses could exceed collected contributions
together with investment income. This would mean a loan to the
participants is needed to avoid insolvency of the takaful program (i.e.
inability to pay claims). From an Islamic perspective this is undesirable
for it may reflect poor management of the takaful program.
4. Members may not have all the technical expertise associated with
managing the takaful funds. The skills required are underwriting,
marketing, claims management, legal, accounting, actuarial, IT and so
on.
5. The takaful program may not be managed in an organized or structured
manner unless a dedicated, professional, highly skilled and financially
reputable party is involved.
The structure of Wakalah for Bank
Aljazira
In the context of a takaful model for Bank Aljazira, takaful members,
through the contract they enter voluntarily, give consent in the form of
absolute authority to Bank Aljazira to act on their behalf as an agent to run
the takaful program under the ta'awun concept explained earlier. In other
words, collectively Bank Aljazira is entrusted to act on behalf of all
participants to ensure that all administration work pertaining to preserving
the financial and nonfinancial soundness and solvency of the takaful fund
and operation are adhered to.
Bank Aljazira, being an outside party to the takaful program, voluntarily agrees to
act as trustee and hence lend support to ensure the above tasks and many other
tasks not mentioned can be performed effectively and efficiently to meet all
takaful operating requirements. It is proposed such support is provided on the
basis that Bank Aljazira will be compensated for this effort via agency fees in the
form of:
1. A percentage of contribution. This percentage will cover the operating cost
of Bank Aljazira in running the takaful program
2. A performance related commission in the form of a percentage of
underwriting surplus in general is defined as the excess of contributions
over claims. This additional fee will provide an incentive for Bank
Aljazira to:
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Ensure that prudent underwriting is carried out at all times;
Optimize investment performance of the takaful funds
Minimize direct expenses related to the takaful fund such as issue
cost, stamp duty, legal fees, reinsurance cost etc
Minimize claims amount payable (i.e. control fraud) without
sacrificing the objectives of takaful
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Ensure that contributions for participation in takaful is set at a
reasonable level to ensure adequacy, equity and fairness among
participants.
The application of Qardul Hasan
It is important to highlight that the involvement of a third party wakala contract is not
merely restricted to operating or managing the takaful funds but also extends beyond
this, Under wakala, the agent or representative of takaful participants is charged with
the following obligations:
1. It has the financial obligation to ascertain that all initial or start-up costs,
which usually are substantial at the beginning, under modern operating
conditions, are met.
2. It has the financial obligations though not a shariah one, to ensure that in the
event of a deficit of the takaful fund (defined in general as claims exceeding
contributions), the agent will assist. Hence it requires the application of the
principal of qardul-hasan (benevolent loan) on the part of takaful operator on
a voluntary basis. To the agent this role as the 'lender of the last resort' would
require having capital on standby at all time.
It is emphasized that the takaful operator is not obligated under sharia to finance the
deficit as the takaful operator only acts as a wakil. Its job is to manage the fund.
Participants among themselves are in effect required to finance any deficit under the
concept of ta'awun established earlier. At the first instant under the proposed model
the deficit can be financed by a qardul hassan from the participants from their saving
account. Each participant's contribution toward this loan can be determined in
proportion to the participant's tabarru in the year the deficit occurs. As a gesture of
mutual help the takaful operator can also voluntarily provide this qardul hassan
Bank Aljazira
Takaful Accounts
For practical purposes, it is proposed that all contributions from the participants
should first be deposited in an Inividual Investment Account (IIA). This account is
maintained for each individual participant. The funds in this account will be invested
by the operator. The participants agree at the outset to transfer from his (IIA) agreed
amounts periodically being his contribution to a second account Ta'awuni Ta'awuni
Account (TTA).
1.5. Conclusion
The relationship between Bank Aljazira and the participants as described above would
be fair to both parties as BAJ as the manager of the fund would be compensated fairly
and the participants would receive a majority share of the surplus if any.
http://www.baj.com.sa/takaful/m1sub3.asp