Analyzing the Structure of Participating Insurance Plans: Alignment with Takaful Principles #
Original Question: “Salam, may i ask if this is alligned to the concept of takaful where premiums from other policyholders are pooled together and policyholders share the investment, insurance and expense risk. Also, considering the plan illustrates the upper and lower limits of investment rate of returns, does that refer to murabahah as the markup of profit has already been set? Hope someone can enlighten me on this”.
The structure of this participating insurance plan may not aligned with the concept of Takaful due to the following reasons:
1. The underlying structure of the plan/policy:
The name of the plan may be called ‘participating’ or ‘participative.’ However, the underlying structure or the essence of the plan may remain as a buy-and-sell contract, whereby the core structure of the plan is an exchange of money for the policy equal to conventional insurance. Thus, the plan is not aligned with the Takaful concept.
This is because, in a shariah-compliant contract, greater weight is given to meaning than words and forms. For example, Ali is giving Ahmad a watch as a ‘gift’ for $100, which is a sale contract and not a gift contract.
Also, the plan is, in reality, investing in another type of fund (the Life Participating Fund), in which there is no clear and detailed explanation of whether the fund’s structure is categorized into Participants’ Funds and Takaful Funds.
From the information available from the picture, it stated that generated profit from the investment returns of the Fund would be distributed among the participating funds, which is more like an investment scheme rather than a Takaful plan. Therefore, it is hard to classify it as the same as the Takaful concept.
2. The underlying fund and its investments:
The underlying fund and its investment activities may be Shariah non-compliant. It is essential to understand that Shariah non-compliant investment is unlawful and intolerable in Islam. For this plan, further confirmation is needed on whether the Life Participating Fund is a Shariah-compliant fund or not, as the fund may invest in Shariah-non-compliant investments.
3. Guaranteed Cash Value:
Another Shariah issue that needs to be highlighted for this plan is the guaranteed cash value, in which there is doubt on the investment guarantee structure whether it is via shariah-compliant means or not.
It is important to note that the standard structure/model for any Takaful investment-linked products is usually based on Mudharabah or Wakalah bil Istithmar contract, which would be unlawful to guarantee a profit or its capital, including such cash value. Therefore, the guaranteed cash value is against the Takaful concept.
In terms of the collar (upper & lower limits), if we want to draw a comparison, then we have to refer to mudharabah investment and not murabahah. As murabahah is a markup sale with profit and the insurer life participating fund is inviting you to invest in their fund and there is no underlying buying and selling as per the murabahah contract.
Wallahu A’lam.
