Application Of The Wadi'ah Concept In Traditional Family Takaful Products

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Most life (family) takaful products today are structured on the form of unit-linked or investment-linked models. This essentially means that there is a clear segregation between the investment fund and the takaful ortabarru' fund. Indeed, the concept of takaful, which is premised on the principle of tabarru', makes it convenient for family takaful operators to adopt the investment-linked conventional life insurance model. However, when it comes to traditional conventional life insurance products, family takaful seems to be lagging behind. This is due to some inherent features of traditional life insurance that cannot be replicated in family takaful product design, such as the various guaranteed benefits, in the form of cash values, besides the normal contingency benefits (i.e., benefits linked to misfortunes of the participants such as death, disability, sickness, etc.) that are structured in traditional life insurance products. The paper studies how family takaful can be competitively structured in a manner that allows various competitive product features demanded by the public to be offered, features that resemble those of traditional life insurance, without in any way violating Shari'ah principles. In particular, the wadi'ah concept is proposed to be adopted in familytakaful product design, as it will allow various forms of guaranteed benefits (non-participating benefits) to be offered to participants in a manner similar to their conventional counterparts. The paper argues that the cash values in the wadi'ah fund are similar to the non-forfeiture benefit in a traditional life plan. However, it is important to note that there is a fundamental difference between these products, i.e. takaful and conventional life insurance. Whilst the latter is based on a purchase-and-sale arrangement, the former is based on the principle of tabarru', by which participants cooperate to help and indemnify one another on the basis of charitable spirit.



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