Takaful - Type of Insurance, Who Is Protected and Who Pays

1. Trade and Commerce

Example: Goods Transported by Sea

• Risk involved:
• Cargo damaged by fire, storm, collision, theft, or accident during transportation.
• Type of insurance / Takaful:
• Marine Cargo Insurance / Marine Cargo Takaful
• Protects goods while they are being transported by sea, air, or land.
• Who is protected:
• Cargo owner – protected against financial loss if the goods are damaged or lost.
• Importer or exporter – protected if they have financial responsibility for the goods during transportation.
• Bank or financier – may also have an interest if the goods were purchased using financing.
• Who pays for the insurance/Takaful:
• Usually the owner of the goods, importer, or exporter.
• Who pays depends on the terms of the sales contract.
• For example, the seller may arrange and pay for the cover, or the buyer may be responsible for arranging it.
• Simple example:
• A Malaysian company imports machinery from Japan.
• The machinery is damaged while being shipped.
• Protected: Malaysian importer.
• Cover: Marine Cargo Takaful.
• Paid by: Importer, if the importer was responsible for arranging the coverage.

2. Finance

Example: Property Purchased with a Bank Loan

• Risk involved:
• Fire
• Flood
• Property damage
• Destruction of the financed asset
• Risk that the borrower may be unable to repay the financing after a major loss.
• Type of insurance / Takaful:
• Fire Insurance / Fire Takaful
• Property Insurance / Property Takaful
• For a home, this may include Houseowner Takaful.
• Financing may also be accompanied by Mortgage Reducing Term Takaful (MRTT) or similar protection for death or total permanent disability.
• Who is protected:
• Borrower/property owner – receives financial assistance to repair or rebuild damaged property.
• Bank/financier – its financial interest in the property is also protected because the property serves as security for the financing.
• Who pays for the insurance/Takaful:
• Normally, the borrower or property owner pays the premium or Takaful contribution.
• The bank may require the borrower to maintain the coverage as a condition of financing.
• Simple example:
• Ahmad obtains financing from an Islamic bank to purchase a house.
• A fire seriously damages the house.
• Protected: Ahmad and the bank’s financial interest.
• Cover: Houseowner/Fire Takaful.
• Paid by: Ahmad, the borrower.

3. Mandatory Insurance – Motor

Example: Driver Causes an Accident

• Risk involved:
• Bodily injury to another person
• Death of a third party
• Damage to another person’s property
• Legal liability arising from an accident
• Type of insurance / Takaful:
• Motor Insurance / Motor Takaful
• At minimum, the legally required third-party protection must be obtained.
• Wider comprehensive coverage can also protect the insured’s own vehicle.
• Who is protected:
• Third party – may receive compensation for covered injury, death, or property damage.
• Vehicle owner/driver – protected from having to personally bear the full financial cost of covered legal liabilities.
• Under comprehensive cover, the vehicle owner may also be protected against damage to their own vehicle.
• Who pays for the insurance/Takaful:
• Usually the registered vehicle owner or policyholder/Takaful participant pays the premium or contribution.
• Simple example:
• A driver accidentally hits another vehicle.
• Protected: The affected third party and the insured vehicle owner against covered liability.
• Cover: Motor Takaful.
• Paid by: Vehicle owner.

4. Mandatory Insurance – Employees

Example: Employee Injured at Work

• Risk involved:
• Workplace injury
• Occupational accident
• Disability
• Death resulting from employment
• Type of insurance / Takaful:
• Workers’ Compensation Insurance/Takaful or other legally required employee protection, depending on the country’s system.
• Who is protected:
• Employee – receives compensation or financial support for qualifying work-related injury or disability.
• Employee’s dependants – may receive benefits if the employee dies.
• Employer – receives protection against certain financial liabilities relating to workplace accidents.
• Who pays for the insurance/Takaful:
• Usually the employer pays because the protection relates to employees working for the organisation.
• Simple example:
• A construction worker is injured while performing his job.
• Protected: Employee and, where applicable, dependants.
• Cover: Workers’ Compensation protection.
• Paid by: Employer.

5. Family Stability

Example: Death of the Family Breadwinner

• Risk involved:
• Death
• Loss of family income
• Financial hardship
• Difficulty paying debts, education costs, or household expenses
• Type of insurance / Takaful:
• Life Insurance
• Shari’ah-compliant alternative: Family Takaful
• Who is protected:
• Spouse
• Children
• Other dependants
• The family receives financial benefits following a covered event involving the participant.
• Who pays for the insurance/Takaful:
• Usually the breadwinner or person whose life is covered pays the premium or Takaful contribution.
• In some employment arrangements, an employer may pay for group life or group Family Takaful protection.
• Simple example:
• A father is the main income earner for his family and participates in a Family Takaful plan.
• He dies unexpectedly.
• Protected: Wife and children.
• Cover: Family Takaful.
• Paid by: Father through regular Takaful contributions.

6. Business Stability

Example: Death of a Key Employee or Business Owner

• Risk involved:
• Death or disability of an important employee
• Loss of expertise
• Loss of revenue
• Business disruption
• Cost of recruiting and replacing the key person
• Type of insurance / Takaful:
• Key Person Insurance
• Shari’ah-compliant equivalent: Key Person Takaful / Business Takaful arrangement
• Who is protected:
• The business itself is normally the main protected party.
• The payment can help the business:
• Replace the key employee
• Cover temporary loss of income
• Pay business expenses
• Maintain operations
• Reorganise after the person’s death or disability
• Who pays for the insurance/Takaful:
• Usually the company/business pays the premium or Takaful contribution.
• The business is generally also the party entitled to the benefit under the arrangement.
• Simple example:
• A company depends heavily on its managing director.
• The company obtains Key Person Takaful on the managing director.
• Protected: Company.
• Cover: Key Person Takaful.
• Paid by: Company.

Easy Way to Remember

• Trade & Commerce → Marine Cargo Takaful → protects cargo owner/trader → usually paid by buyer or seller responsible for the goods.
• Finance → Property/Fire Takaful → protects borrower and financier’s interest → paid by borrower/property owner.
• Motor → Motor Takaful → protects third parties and vehicle owner against covered liability → paid by vehicle owner.
• Workers → Workers’ protection → protects employees and employer against relevant liabilities → paid by employer.
• Family → Family Takaful → protects dependants/family → usually paid by breadwinner/participant.
• Business → Key Person Takaful → protects the company → paid by the company.