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A technical expert in Takaful and applied mathematics, who applies theories of probability, economics, and finance to the business of Takaful and is responsible for the calculation of contributions, reserves, and other valuations.

Actuarial Valuation

The determination, as of a measurement date, of the actuarial present value of a Family Takaful plan benefit and any related benefits.


A representative of the Takaful operator who seeks to determine the extent of the Takaful operator’s liability for loss when a claim is submitted.

Admitted Assets

Assets that are admitted by a regulator for the purposes of valuing the financial strength of a Takaful operator. Such assets are usually of good quality and can be easily sold in the event of liquidation and / or can be borrowed agains

Adverse Selection

Refers to the tendency of higher risk individuals to seek out more Takaful coverage on average in anticipation of a greater probability of experiencing the covered event(s).


An individual or institution that offers Takaful products and services on behalf of the Takaful for a fee.


An agreement by a Takaful operator to make periodic payments that continues during the survival of the annuitant(s) or for a specified period.


An institution authorised by the authorities and acts on behalf of the participants to obtain the appropriate Takaful and Retakaful covers.


The written Takaful contract including all clauses, riders, endorsements and attachments thereto and made a part thereof.


A demand made by the participant, or the participant’s beneficiary, for payment of the benefits as provided by the Takaful Certificate.


An arrangement where a risk is shared between a number of Takaful operators, with each operator issuing its own Takaful certificate up to the amount of its share in the risks and are agreeable to the participant. Claims therefrom are apportioned accordingly.


Fee paid to an agent or Takaful salesperson as a percentage of the Takaful contribution. This is based on the Shari’ah principle of Al wakalah. The percentage varies widely depending on coverage, the Takaful operator’s own terms and policies.


The amount paid by the participant in consideration for his participation in a Takaful scheme or plan. Termed as ‘premium’ in conventional insurance


The scope of protection provided under a Takaful Certificate. In General Takaful, coverage are against perils covered in respect of properties, liabilities for both the individuals and body corporate. For Family Takaful, it involves coverage in respect of investment, health and death benefits.


A specific portion of a claim that the participant is personally liable in relation to the whole amount claimed under the Takaful.

Distributable Surplus

The net difference that is created in the Takaful fund after all expenses such as claims, reserves and retakaful have been subtracted. This shall be paid to eligible participants who have not made any claim under the policy. Takaful operator shall also share in the surplus based on jualah.


The first amount that a participant has to pay on his own account towards each claim.


Endorsements can alter, delete or add coverage, terms or provisions to a Takaful certificate.


Specified hazards listed in a Takaful certificate for which benefits will not be paid.


Arabic for uncertainty. One of three fundamental prohibitions in Islamic finance (the other two being riba and maisir). Gharar involves an unacceptable level of uncertainty or contingency in a contract. The prohibition on gharar is often used as the grounds for criticism of conventional financial practices such as short selling, speculation and derivatives.

Grace Period

The length of time (usually up to 31 days) after a contribution is due and unpaid, during which the certificate cover, including all riders, remains in force. If a contribution was paid during the grace period, the contribution was considered to have been paid on time.


A circumstance that increases the likelihood or probable severity of a loss.


Placing the participant who has suffered a loss covered under the Takaful certificate into the same financial position he enjoyed immediately prior to the loss. Restoration to the claimant of a loss may be made by payment, repair or replacement.


A stipulated price/fee for performing a service. In Takaful, this involves the amount paid to Takaful operators from the distributable surplus of the Takaful risk fund.

Lapse Ratio

The ratio of the number of Family Takaful certificates that lapsed within a given period to the number in force at the beginning of that period.

Loss Ratio

The ratio of incurred losses and loss-adjustment expenses to net contributions earned. This ratio measures the company’s underlying profitability, or loss experience, on its total book of business.

Loss Reserve

The estimated liability, as it would appear in a Takaful operator’s statement, for unpaid claims or losses that have occurred as of a given evaluation date. Usually includes losses incurred but not reported (IBNR), losses due but not yet paid, and amounts not yet due. For individual claims, the loss reserve is the estimate of what will ultimately be paid out on that claim.


Any activity that involves betting whereby the winner takes the bet and the loser loses his bet. This is prohibited according to the Shari’ah.

Maqasid Shari’ah

Objectives of Shari’ah of legal rule which is meant to enjoin benefits and prevention of harm to mankind.

Moral Hazard

In Takaful, moral hazard refers to the change in behaviour of a participant in a way that raises costs for the Takaful Risk Fund. This happens since the participant no longer bears the full costs as he would were he not covered under Takaful. For example, a person with motor Takaful may drive with less caution since he/she will no longer bear the full cost of damages if he/she were involved in an accident.


The parties are the rabb al-mal or investor that solely provides the capital, and the mudharib or entrepreneur that solely manages the project. If the venture is profitable, the profit will be distributed based on a pre-agreed ratio. If the business incurs a loss, it will be borne solely by the provider of the capital.

Participants’ Risk Fund

An account to credit a portion/all of contributions from the participant for the purpose of Tabarru’.

Participants’ Risk Fund

An account to credit a portion/all of contributions from the participant for the purpose of Tabarru’.

Net Takaful Contribution

The amount of contribution less wakalah fees and cancellations.

Named Perils

Perils that are specifically covered under the Takaful certificate.

Net Takaful Contribution

The amount of contribution less wakalah fees and cancellations.


A person/body corporate who participates in a Takaful scheme and to whom a Takaful Certificate is issued.

Participants’ Risk Fund

An account to credit a portion/all of contributions from the participant for the purpose of Tabarru’.


The specific cause of a possible loss.

Personal Lines

Takaful for individuals and families, such as private motor vehicle, personal accident and fire house owners Takaful.

Permissible Takaful Interest

A participant’s financial interest in the subject matter covered under the Takaful.

Pre-Existing Condition

A coverage limitation included in many health takaful policies which states that certain physical or mental conditions, either previously diagnosed or which would normally be expected to require treatment prior to issue, will not be covered under the new policy for a specified period of time.

Proposal and Declaration Form

The initial application form for Takaful filled by a prospective participant. This form requires details such as name, address, occupation, and subject matter of Takaful; and is the basis of a Takaful contract.

Principle of Contribution

The principle holding that two or more Takaful operators each liable for a covered loss should participate in the payment of that loss. Having paid its share of a loss, a Takaful operator may be entitled to equitable contribution—the legal right to recover part of the payment from another Takaful operator whose Takaful certificate was also applicable.

Proximate Cause

The cause having the most significant impact in bringing about the loss under a Takaful certificate, when two or more independent perils operate at the same time (i.e., concurrently) to produce a loss.

Qard al-Hasan

Lending without interest, or also known as benevolent loan.


A Takaful effected with another Takaful operator(s) to enable a Takaful operator to expand its capacity; stabilise its underwriting results; finance its expanding volume; secure catastrophe protection against shock losses; withdraw from a line of business or a geographical area within a specified time period.

Retakaful Ceded

The unit of Takaful risk transferred to a retakaful operator by a ceding takaful company.


The automatic re-establishment of in-force status effected by the payment of another contribution.


A collection of assets set aside to meet future liabilities.


This term literally means an increase or addition. Technically it denotes any increase or advantage obtained by the lender as a condition of the loan. Any risk-free or ‘‘guaranteed’’ rate of return on a loan or investment is riba. Riba, in all forms, is prohibited in Islam. In conventional terms, riba and ‘‘interest’’ are used interchangeably.

Risk-based Capital

An amount of capital calculated based on the Takaful risks assumed by the Takaful operator. The amount of capital should theoretically be sufficient to protect the participants from various classes of risks that could threaten the company. To protect from catastrophic events and other types of covariant risks, the Takaful operator must also participate in an appropriate Retakaful program.


Islamic Law / Jurisprudence. Islamic law is derived from the sources of the Quran, Sunnah, Ijma and Qias


An owner of shares in a takaful company.


Having sufficient assets-capital, surplus, reserves and being able to satisfy financial requirements – investments, annual reports, examinations – to be eligible to transact Takaful business and meet liabilities.

Statutory Reserve

A financial reserve established by a Takaful, either specific or general, required by law.


The right of a Takaful operator who has taken over the claimant’s loss to pursue remedies against a third party.


Donation or charity. A contract where a participant agrees to donate a pre-determined percentage of his contribution (to a Takaful fund) to provide assistance to fellow participants. In this way, he fills his obligation of joint guarantee and mutual help should another participant suffer a loss. This concept eliminates the element of gharar fahish from the Takaful contract.


Mutual responsibility, an alternative term to Islamic insurance. Based on the principle of mutual assistance, Takaful provides mutual protection of assets and property and offers joint risk sharing in the event of a loss by one of the participants.

Takaful Participant

The individuals (or institutions) who enter into a Shari’ah-compliant scheme of mutual risk sharing.

Takaful Contribution

Financial cost of obtaining a Takaful cover, paid as a lump sum or in instalments during the duration of the certificate. It is a form of donation with a condition of compensation (tabarru).

Takaful Fund

Under Takaful, the Takaful fund is a separate fund that does not belong to the Takaful Operator or its shareholders. Generally speaking, the fund is owned by all the participants who have donated financial contributions to the fund.

Unearned Contribution

That part of the contribution applicable to the unexpired part of the Certificate period.


The individual trained in evaluating risks and determining rates and coverage for the various Takaful plans and schemes.


The process of selecting risks for Takaful and classifying them according to their risk profiles so that the appropriate rates and terms may be assigned. The process also includes rejection of those risks that do not qualify.

Underwriting Expense Ratio

This represents the percentage of a Takaful operator’s net written contributions that went toward underwriting expenses, such as commissions to agents and brokers, taxes, salaries, employee benefits and other operating costs. The ratio is computed by dividing underwriting expenses by net contributions written. A company with an underwriting expense ratio of 40.5 per cent is spending more than 40 cents of every dollar of net contributions written to pay underwriting costs.

Utmost Good Faith

The principle of utmost good faith requires anyone seeking Takaful to disclose all relevant facts. These are facts that would   influence the judgment of a prudent underwriter in fixing the contribution or determining whether they will take on the risk. Where material non-disclosure can be proven, a contract can be voided.


A representative is appointed to undertake transactions on another person’s behalf. For example, a Takaful operator and agent/broker earn a fee for the Takaful services provided, deducted from the contributions paid by the participants.


An endowment or a charitable trust set up for Islamic purposes (usually for education, mosques or for the poor). It involves tying up a property in perpetuity so that it cannot be sold, inherited or donated. In some jurisdictions, waqf is used as the operational model for Takaful.