Deck 8: Islamic Insurance Takaful

Question 1

The parties in takaful are many and the participants insure one another against any loss and this is carried out mutually.

Answer 1

True

Question 2

In Islamic law, the role of the operator of the cooperative insurance business is integrated within the participants' role.

Answer 2

False

Question 3

Takaful is the Islamic alternative to conventional insurance, often translated as 'Islamic insurance'.

Answer 3

True

Question 4

Under takaful, the participants remain the owners of the premiums even though they have donated them into a pool of funds to indemnify any member of the group.

Question 5

The three basic concepts of mutuality embodied in the takaful model of insurance are: mutual help, mutual responsibility, and mutual financial interest.

Question 6

The insured party in the conventional insurance has nothing to do with other insured parties in terms of guaranteeing one another against any loss.

Question 7

Prohibitive elements in Islamic commercial transactions such as riba, gharar, and maysir are also prohibited in the design of takaful models.

Question 8

Premiums paid by takaful policyholders are considered as donations towards the common cause to assist those members who suffer any loss.

Question 9

The relationship between takaful operator and participants can be characterized as insurer-insured relationship where each party assumes different roles and responsibilities.

Question 10

Islamic law restricts the role of the insurance company to merely an operator who is appointed to manage the portfolio and invest the insurance contribution for and on behalf of the participants.

Question 11

The model of takaful adopted by the stakeholders determines profit distribution as well as remuneration of the takaful operator.

Question 12

The real concept of takaful relates more to a social security system run through collaborative efforts of the people.

Question 13

Although the aim of takaful is to promote solidarity and cooperation among Muslims under the principle of ta`awun, its initial objective remains to gain profit.

Question 14

Literally, takaful means joint responsibility or guarantee based on mutual agreement.

Question 15

Takaful is an alternative system of insurance where members contribute their financial resources into a common pool based on the principles of profit-and-loss sharing PLS..

Question 16

Despite the major difference between conventional insurance and takaful, there is no restriction on the type of the business in which they can investment their funds.

Question 17

Takaful industry is limited in its scope to Malaysia and the Middle Eastern Muslim countries.

Question 18

There are two main parties in the conventional insurance: the insurance company and the operator.

Question 19

Mitigation of risk while carrying out commercial activities is not permissible in Islam.

Question 20

The concept of donations is adopted and merged with other frameworks of Islamic commercial transactions to complement premiums.

Question 21

The underwriting surplus is calculated by deducting all indemnities paid for deserving claims, the retakaful policy, and changes in technical provisions from the total premium contributions of the participants.

Question 22

It is safe to claim that the mudarabah model of takaful is gaining grounds in the industry despite the advent of the wakalah model.

Question 23

The first resolution on the permissibility of takaful as a cooperative insurance was issued by the Council of Saudi Scholars in 1977.

Question 24

Partnering with international giants in offering of takaful products in Europe and America is a viable strategy to penetrate the global insurance market.

Question 25

AAOIFI is yet to issue a standard that provides for the necessary disclosure of the bases for determining and allocating surplus or deficit in takaful companies.

Question 26

General takaful and family takaful are Sharī'ah-compliant alternatives to the conventional life insurance and general insurance respectively.

Question 27

AAOIFI recommends the hybrid model for takaful companies.

Question 28

Family takaful is the Sharī'ah-compliant alternative to life insurance.

Question 29

Takaful operators need to diversify their products to include new areas such as medical insurance and introduce challenging frameworks to address complex risk issues.

Question 30

The ultra-hybrid model of takaful is hybrid of the wakalah and waqf models.

Question 31

There is no need to restructure the takaful products since they are conventionally viable and globally competitive as they are.

Question 32

Under the wakalah model of takaful, the takaful operator does not share in any risk borne in the investment or management of the takaful fund.

Question 33

A significant advantage of 'collaboration with savings' plan is that participant's benefit collectively from the common pool of funds they mutually contribute through tabarru'.

Question 34

Underwriting surpluses of the takaful funds are distributed to the participants quarterly.

Question 35

The available products in the takaful industry have been generally classified into three main products -general takaful and family takaful, and community takaful.

Question 36

When the participants' investment fund PIF. is invested in Sharī'ah-compliant business, the profit shared between the takaful operator and the participants based on a pre-agreed ratio.

Question 37

The funds contributed by the participants under the mudarabah model of takaful are divided into Participants' Risk Fund PRF. and Participants' Investment Fund PIF..

Question 38

The main two parties involved in the implementation of the takaful system are the issuer and the participants.

Question 39

General takaful is a short-term policy that covers assets and other proprietary possessions of participants from probable material loss or any form of damage.

Question 40

The hybrid takaful model is a combination of the wakalah model and the murabahah model where the wakalah model is employed for the underwriting purposes, and the murabahah model is utilised for the investment activities.

Question 41

The modern history of takaful dates back to 1979 when:

A) Islamic-Arab Insurance Company was established in Saudi Arabia and later in United Arab Emirates
B) the Islamic Insurance Company was established in Sudan and offered its takaful based on the cooperative insurance model
C) Malaysia enacted the Takaful Act which provides for the regulation of takaful business in Malaysia and other incidental matters
D) the OIC Fiqh Academy approved the takaful system

Question 42

Deficit occurs when the takaful claims of the participants are less than the pool of funds for underwriting activities.

Question 43

Takaful premiums are:

A) considered as trust held by the operator on behalf of the participants
B) paid in return for an insurance cover
C) recognized as deposits that must be returned to the participants at the end of business year
D) all of the above

Question 44

Within the conventional framework of insurance, the pool of risks of insurance companies is transferred to a larger company where the reinsurer reinsures the risks through a process of reinsurance.

Question 45

It is the duty of the takaful participants to rectify the deficiency and loss in the Participants' Risk Funds PRF. initially by asking policyholders to meet the deficit pro rata.

Question 46

The shareholders will get reimbursed from the profit realised from the investment activities of the takaful undertaking.

Question 47

Sharī'ah scholars prohibit the takaful operators to reinsure with conventional reinsurance companies regardless of any given justification.

Question 48

The basic concepts. of mutuality that is/are embodied in the takaful model of insurance include:

A) mutual help
B) mutual responsibility
C) mutual protection
D) all of the above

Question 49

The following features are unique to takaful EXCEPT:

A) cooperative risk sharing
B) profit and loss sharing
C) clear financial segregation
D) Sharī'ah-compliant policies and strategies

Question 50

The two main funds in the takaful undertaking are Participants' Investment Fund PIF. and Participants' Management Funds PMF..

Question 51

Takaful is an alternative system of insurance where members contribute their financial resources into a common pool based on the principles of:

A) ta'awun mutual assistance. and tabarru' donation.
B) profit and loss sharing
C) business partnership
D) all of the above

Question 52

The number of parties involved in takaful are:

A) two
B) three
C) many
D) none of the above

Question 53

The takaful operator may provide a qard hasan benevolent loan. to the takaful fund to carry out the underwriting activities in order to cover any deficit in the takaful undertakings.

Question 54

Recorded losses in the Participants' Investment Fund PIF. shall be absorbed by the capital providers the participants..

Question 55

In the conventional practice of insurance business:

A) the insurance company is a profit-making entity which agrees to bear the financial burden and losses of its policyholders
B) the shareholders own the company and are entitled to receive any profit and bear the burden of any deficit recorded at the end of the financial year
C) there is no restriction in investment of funds
D) all of the above

Question 56

Which of the following is NOT a model of takaful?

A) the Mudarabah Model
B) the Wakalah Model
C) hybrid Wakalah-cum-Mudarabah Model
D) none of the above

Question 57

The management team collectively has exclusive right to the surplus originated from the takaful policyholders who made the financial contributions.

Question 58

The noble hadith of Prophet Mohammed peace be upon him 'tie your camel first' typifies the importance of:

A) taking all possible precautions while carrying out commercial as well as other civil activities then relying on the Almighty Allah for protection
B) getting insurance cover against market risks and losses
C) putting in place appropriate measures of risk management while carrying out commercial activities
D) all of the above

Question 59

The main risk management technique for takaful operators is reinsurance where their risks are underwritten by the reinsurer.

Question 60

Retakaful, which has been structured in a Sharī'ah-compliant model, is the Islamic alternative to conventional reinsurance.

Question 61

This type of family plan is usually structured in a manner that reflects communal, ethnic, or organisational needs:

A) collaboration based on specific groups
B) ordinary collaboration
C) collaboration based on special issues
D) collaboration with savings

Question 62

______________________ is also called "the mixed model".

A) The hybrid takaful model
B) The Mudarabah - Musharakah Model
C) The Wakalah Model
D) Wakalah with Waqf Model

Question 63

IFSB-8 suggests that the agency wakalah. fee should cover the total sum of the following costs:

A) management expenses
B) distribution costs, including intermediaries' remuneration
C) a margin of operational profit to the takaful operator.
D) all of the above

Question 64

Which of the following statements are true with regard to reinsurance?

A) the reinsurance operation is subject to riba and gharar
B) insurable interest is vested in the reinsured party
C) reinsurance is a mechanism of the mitigation of great risks by transferring the risks to a large insurer known as reinsurer
D) all of the above

Question 65

__________________ is not one of the three types of family takaful.

A) Ordinary collaboration
B) Collaboration based on specific issues
C) Collaboration with savings
D) Collaboration based on specific groups

Question 66

In situations where it is clear that the deficit in the in Participants Risk Fund PRF. is due to the negligence or mismanagement of the takaful operator, such deficit may be rectified:

A) through the transfer of assets from the shareholders' fund
B) through the borrowing from the shareholders' funds the amount of deficit that should be paid back from future surpluses
C) by asking the policyholders to meet the deficit pro rata
D) by increasing the future premium contribution of policyholders on a pro-rata basis
E) all of the above

Question 67

The followings are examples of general takaful covers EXCEPT:

A) machinery breakdown
B) fire Takaful
C) permanent disability takaful
D) workmen Compensation takaful

Question 68

Which of the following characteristics is NOT true regarding the family takaful?

A) it is usually offered as a long-term policy cover that may span between 5 and 10 years depending on the structure of the product
B) family takaful cover involves life and family issues
C) collaboration with savings is one of the three types of family takaful
D) examples of family takaful include retirement plans

Question 69

When a deficit is recorded in the PIF, the losses will be:

A) absorbed by the capital providers
B) rectified through qard hasan
C) by asking the policyholders to meet the deficit pro rata
D) all of the above

Question 70

Under the mudarabah model of takaful, the funds contributed by the participants into the common pool of funds, which is used for underwriting purposes, is known as:

A) Participants' Risk Fund PRF.
B) Participants' Investment Fund PIF.
C) Participants' Retirement Fund PRF.
D) Participants' Management Fund PMF.

Question 71

This new takaful model was introduced by the renowned Sharī'ah scholar Muhammad Taqi Usmani the Chairman of the AAOIFI:

A) the Hybrid takaful model
B) the Mudarabah Model
C) the Wakalah Model
D) the Ultra-hybrid Model of Takaful

Question 72

AAOIFI proposes the following methods. of covering the takaful deficit:

A) to settle the deficit from the reserves of policyholders, if any
B) to borrow from the shareholders' funds or from others the amount of deficit that should be paid back from future surpluses
C) to increase the future premium contribution of policyholders on a pro-rata basis
D) all of the above

Question 73

Health Takaful is an example of:

A) social takaful
B) general takaful
C) family takaful
D) community takaful

Question 74

The followings are lawful sources of income of the Takaful Operator EXCEPT:

A) agency fee
B) incentive fee
C) fixed percentage of the total investment funds
D) the profit share from the investment of the funds

Question 75

___________________is a short-term policy renewable periodically according to the terms and conditions of the takaful contract.

A) general takaful
B) general insurance
C) family takaful
D) life insurance

Question 76

Modern Sharī'ah scholars:

A) permit takaful operators to undertake reinsurance policies with conventional reinsurance companies
B) permit takaful operators to undertake reinsurance policies with conventional reinsurance companies under certain conditions
C) do not permit takaful operators to undertake reinsurance policies with conventional reinsurance companies under any condition
D) allow takaful operators to reinsure with conventional reinsurance companies only once a year

Question 77

What are the major differences between takaful and conventional insurance?

Question 78

___________________ is based on the contract of agency between the takaful participants and the takaful operator where the takaful participants are the real owners of the fund, and the takaful operator acts as an agent.

A) the Mudarabah Model of takaful
B) the Wakalah Model of takaful
C) hybrid Wakalah-cum-Mudarabah Model of takaful
D) wakalah with Waqf Model of takaful