Mawuli Zogbonu; Takhaful Insurance – emerging or diminishing?
In Ghana, it is believed that Islamic funerals are inexpensive and less cumbersome, compared with other forms of funerals.
Advertisement
This thought is largely fuelled by the rather swift interment of our deceased Muslim brothers and sisters, which is in accordance with the Islamic faith.
This notion notwithstanding, our Muslim brothers and sisters also have a great deal of responsibility within the Muslim community, particularly in their families. In this regard, the need to indemnify oneself and his/her dependants against the distresses of life has become more imperative, particularly, to ensure the family’s continued survival.
As micro-insurance development is yet to be firmed up in Ghana, so being agricultural insurance, there is also a product developed particularly for members of the Muslim fraternity known as Takhaful.
What is Takhaful?
Also referred to as Family Takhaful, Takhaful is a contract that protects individuals against financial losses resulting from death. In the case of family Takhaful, the loss or death of a person, apart from emotional loss, also comes with financial loss borne by the family of the deceased. The role of Takhaful is, therefore, to share the risk with the insured, by allowing members participate in a scheme to share the risk and help ease the burden on the family, in the event of a member’s death.
To share the risks, each member contributes a defined amount for a defined period for a defined benefit or cover. Minimum and maximum age limits are also defined. Indeed, participating in the Takhaful Schemes is considered a noble act, as participants are given the chance to help one another.
History of Takhaful
Takhaful has its origin within the ancient Arabic tribes, who often pooled resources in order to pay compensation to individuals and families against whom their family members committed various offences.
The principle later extended into many walks of life, to include marine, in which participants contributed to a fund to cover anyone in a group who suffered mishaps on sea voyages. Thus, Takhaful is a type of Islamic insurance where members contribute money into a pooling system in order to indemnify one another against loss or damage.
Other Trending Stories
Takhaful is based on Sha’ria, the Supreme Islamic law, and explains how it is the responsibility of individuals to cooperate and protect one another.
This concept has been practised in various forms since 622 AD. Muslim jurists have acknowledged that the basis of shared responsibility laid the foundation of mutual insurance known as Takhaful.
The Tabarru Fund
This fund is referred to as the risk fund. The management of the fund is done with utmost best practices with the intention of first, accumulating as much funds as possible to help those in needs, and also to make as much investment income (profit) as possible for their clients.
The insurers, therefore, need to build the Tabarru fund as quickly as possible to enable them to pay claims in the event of death, disability and/or any other covered mishaps to their members.
When a person passes away, the initial death benefit is paid from the risk/Tabarru fund. On the other hand, if the individual’s contribution exceeds the defined death benefit, the former is paid. This, therefore, calls for prudent underwriting. Thus, where no or less claims are paid, the investment records a surplus, which is then shared under the Mudharabah contract (profit sharing).
How do policyholders benefit from Takhaful?
Principally, when a policyholder enters into a Takhaful scheme, he is not expected to have any intention of making money. His intention should be to share his wealth through contributing money or giving his money as Tabarru towards a fund that is used to help another person in the event of need. Contributors should look beyond worldly rewards and be rest assured that when their time comes to face death, the managers of the fund shall also ease the burden on their families.
The risk fund and the special fund are the Tabarru funds. Hence, in essence, there are two types of pool funds being maintained under this model; the investment accounts and the Ta’awuni Account, and both accounts are invested to earn surplus.
Under Takhaful, the investment accounts belong to the individual policyholders, as such, the insurer allows for partial withdrawals at defined intervals. However, upon a terminal claim or surrender, a policyholder may claim the entire funds in his/her investment account.
For insurers
Under a Wakalah (special donation/caretakership) component, Takhaful insurers earn their income through the management expenses charged, which is embedded in the contribution PLUS a defined fee (10 per cent in the case of Takhaful Ikhlas) charged out of the surplus from both the Investment and Ta’awuni accounts.
Insurers must, therefore, be cautious of the costs incurred in order to avoid overruns. From the actuarial perspective, the assumptions used in the product pricing will usually depend on the type of benefits on the policy, which is often based on incidence rates such as mortality, hospitalisation, morbidity, etc. expenses which include management expenses and commissions to agents as well as expected profit rate or investment and perhaps a small profit margin, although this is rarely done to avoid higher contribution.
Takhaful underwriting
Just as in conventional insurance, individual participant’s health and financial backgrounds are assessed, especially for a large sum of cover. If an applicant is found to display any signs of health impairment, further questionnaires or medical reports are required to be submitted. The reports will then be assessed and the decision is normally to accept as standard, load with extra mortality, postponed or declined.
Takhaful in Ghana
Currently, only a few insurers in Ghana underwrite Takhaful policies, since the concept is still at the nascent stage.
Advertisement
Way Forward
The concept of Takhaful, though laudable, is yet to be fully appreciated in Ghana. Besides, the Muslim community in Ghana remains, largely, unaware of the existence of Takhaful products.
The various insurance strategic bodies such as the GIA and GIBA must, therefore, take immediate steps to sensitise the Muslim community some more to its existence and the need to patronise such products, as this will consequently inure to the wellbeing of both the Muslim community and Ghana as a whole. — GB
Until next week, ‘This is insurance from the eyes of my mind’.