Abstract
The premium is a deterministic function to compensate for losses due to random events and it is an essential part of an insurance company operation. Numerous issues are faced by the Takaful operator in the practice of insurance, one of them is “validity of life insurance” which is still under discussion among Islamic scholars. Their conversation leads to the issue of approach which are utilised by the Takaful operator to create a sales illustration product. Based on their current discussion, there are still some hidden elements and some missing points related to the concept of loss and surplus sharing utilised by Takaful operator. Therefore, this paper focuses on the practice of Family Takaful for producing the sale illustration product which Shariah compliant. The study develops a new model of the premium for an equity-linked policy (Unit-linked product) by considering the properties of Takaful contracts namely Tabarru and Mudarabah. It aims to ensure that a new model developed can comprehensively demonstrate Shariah compliance. The model adapted and derived from the current Takaful Business Model. We add several assumptions to implicate the approach in a real problem associated with the ratio of profit-sharing (Mudarabah) and loss-sharing (Tabarru). Secondary data are used to test and produce a sales illustration product by utilising a new integrated model of the premium developed. Based on the empirical results, a new model of premium is used to create a sales illustration product that comprehensively complies with Shariah and also more profitable and beneficial when compared with a standard approach used by Takaful operator.
Highlights
The primary objective of life insurance is to provide a benefit, which depends on risk regarding the survival probability of individuals (Hardy, 2003)
We develop a new model of the premium for the Family Takaful, adapted and derived from the current Takaful Business Model
This study has contributed to a new model for Takaful business model that complies with Shariah comprehensively and is more profitable
Summary
The primary objective of life insurance is to provide a benefit, which depends on risk regarding the survival probability of individuals (Hardy, 2003). In the natural course of life, most people are exposed to all sorts of risks, which may be unexpected and unforeseen (Khorsid, 2004). This risk can sometimes leave people in vulnerable and helpless conditions (Matsawali et al, 2012). Muslim Scholars have certified that life insurance is unlawful in Islam. It is linked with distrust of Allah and does not take into consideration that “He has decreed the moment of death of all human beings known as Qada and Qadar”. The practice of life insurance is to ensure a sense of solidarity among participants to protect the offspring of the deceased, which is encouraged by the Prophet Muhammad
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