Difference between Family Takaful

and General Takaful

The Takaful business is divided into two major categories: Family Takaful and
General Takaful. General Takaful schemes are about mutual co-operation to offer all
kinds of non-life protections in accordance with the principles of the Shariah. It
provides insurance to the diverse needs of individuals and businesses to cover
against unpredicted material loss or damage threatening properties, assets or
belongings of participants. General Takaful is a short-term scheme, settled usually
on an annual renewal basis, and as in Family Takaful, all participants are expected to
mutually contribute premiums into a common pool managed by the Takaful operator
and agree to indemnify those participants who suffer from an insured peril. The
amounts of participants contribution are determined by the terms agreed in the
contract, by considering the nature and value of the insured asset and risk involved.
The main difference between the Family Takaful and General Takaful is the way
contributions are operated in fact; Family Takaful schemes are about risk-only jointguarantee agreements while family Takaful schemes are investment-oriented
agreements. In fact, General Takaful payments are not divided into two separate
accounts as they are treated only as Tabarru. The Takaful operator raises the
Tabarru fund, and invest the remainder of the fund after deducting the operational
cost of the scheme. If any participant suffers a loss or damage, then he will be
compensated from this fund, by considering the level of occurred losses. Any profit
or return from the investment is returned back to the fund. And unlike Family
Takaful, net surplus in the General Takaful Fund is shared between the participants
and the Takaful operator. In addition, the profits sharing will exclude participants
who get compensation from their claims.
Aspects of General Takaful
General Takaful schemes are about meeting the needs for protection of individuals
and businesses in relation to defined events that may occur on a short-term basis.
Like Family Takaful, participants of General Takaful also enter into an agreement
based on Wakalah, Mudarabah or a hybrid combination of both. The participants pay
all Takaful contributions as Tabarru'; their contributions are credited to the General
Takaful fund of the Takaful company. This fund is invested by the Takaful operator as
a Mudarib or a Wakeel in line with the virtues of Shariah and the profit generated
from such investment is pooled back to the fund.
The Takaful operator indemnifies participants who suffered a loss consequent upon
the occurrence of a catastrophe or disaster that is clearly defined in the contract.
According to the way participants contributions are allocated internally, the General
Takaful fund can pay for operating costs of general Takaful business that may
include fees, profit shares, re-Takaful expenses in addition to provisions for setting

up any contingency and special reserves. Any net underwriting surplus resulting
from the fund after deducting all these costs will be distributed between the
participants and the operator on expiry of each insureds insurance policy; the
distribution uses the ratio agreed in accordance with the conditions of the
Mudarabah contract. This distribution may be replaced by a reduction in
participants instalments to avoid the element of Riba in the contract. Participants
who may have incurred any claims or have received any Takaful benefits are
excluded from the profits sharing. If the total contributions and the income from
investments cannot cover all claims and expenses during the period, the
participants may be required to pay additional premiums.