Hello there! It’s Belle from IQI with another #ApaJadi scenario, where I help you answer your property-related questions. Today, we’ll be talking about insurance!
There are so many types of insurance plans out there – it can be overwhelming to see the amount of insurance packages without understanding what it actually is, and adding Takaful into the mix can be even more confusing. Do I need it? What type of insurance do I actually need? What’s the difference between conventional insurance and Takaful?
Don’t fret just yet – read on as we give you an idea of what conventional insurance and Takaful is all about!
What is insurance?
Insurance is a practice or arrangement by a company or government agency where compensation is provided for illness, damage or a specified loss in exchange for payment of a premium.
In other words, the insurance company protects you through compensation of loss or damage of your possessions or self in return for a monthly, quarterly, half-yearly or annual premium. It is also known as a risk management system, where the risk is transferred to another party.
Now that we understand what insurance means, now we can answer the question, “what types of insurance are out there?” Let’s quickly go through them:
Types of insurance
Health insurance is coverage in cases of hospitalization which requires proper medical treatment and recovery.
Insurance companies offer either a medical card or critical illness coverage – and you can opt for both at the same time. A medical card helps cover major medical fees, while critical illness coverage offers financial security in case of steep medical costs.
Life insurance provides financial protection against events such as permanent disability, critical or terminal illness or sudden death.
There are two types of life insurance offered: term life insurance and whole life insurance. Term life insurance is protection in case of sudden or unexpected events such as death, permanent disability or terminal illness, in which cash benefits are paid out to beneficiaries in a lump sum. On the other hand, whole life insurance provides a more stable life-long financial protection for the beneficiaries if the policy owner is afflicted by a permanent disability or death.
Property insurance, also known as general insurance, provides protection for your personal assets such as your home or vehicle. There are three types of policies for home insurance, which are the fire policy, homeowner policy and householder policy.
The fire policy is quite straightforward; it provides coverage in cases of damage due to fire or lightning. However, it doesn’t cover the contents of the building – only its value.
The homeowner policy provides additional levels of coverage for the physical structure of the property caused by extreme weather conditions such as floods, fires, burst pipes and other devastating effects.
The householder policy provides extra protection for the value of the contents of the home caused by events such as lightning, fire and more, as well as additional coverage in case of fatal injuries inflicted upon the registered homeowners.
Under the Road Transport Act 1987, all vehicle owners are required to purchase motor insurance. There are three types of motor insurance: comprehensive coverage or first-party policy, theft and third-party fire coverage or second-party policy, and third-party coverage or third-party policy.
The first party-policy or comprehensive coverage is the most recommended insurance package to choose from, as it provides coverage for almost all events such as damage or loss due to theft or fire, accidents, damage to another party’s property, and injury or death of another party.
We now have a lowdown of the types of insurance offered in the market. Now, let’s look into what Takaful is about!
What is Takaful?
Takaful is a concept based on Shariah (Islamic) law, where a group of participants mutually agree to guarantee each other against a defined loss or damage by contributing a certain amount of donation, known as tabarru’, into a Takaful fund. In the event of a loss or damage, Takaful operators will disburse the funds, and the surplus of these funds will only be disbursed after fulfilling the obligation of assisting the participants.
What is the difference between conventional insurance and Takaful?
The main difference between conventional insurance and Takaful is that Takaful complies with Shariah law.
There are three elements in conventional insurance that are not present in Takaful. These elements are Gharar, meaning unqualified uncertainty or risk; Maisir, meaning gambling; and Riba, which means financial interest. These three elements do not comply with Shariah law; therefore, it is not practiced in Takaful.
Besides that, unlike conventional insurance, Takaful allows participants to retain an ownership interest in the fund, where their contributions are invested into ‘Halal’ or Shariah-compliant funds to obtain investment income. If the fund generates a surplus, the participants, and occasionally the Takaful operators, get a share of it, creating a win-win situation for the participants.
Also, as mentioned previously, Takaful is based on mutual cooperation, whereas conventional insurance is a policy where the risk is shifted to the insurance company through the premium paid to receive the coverage.
Another question that remains in people’s minds is, can non-Muslims sign up for Takaful? And the answer to that is yes! Although it is heavily based on Islamic principles, it isn’t considered a religious product, so anyone can sign up for Takaful.
Now that you have an idea of the two types of insurance, you can now make an informed decision and choose which is the better option for you and your needs. Most insurance plans are now customizable and flexible so that you can get the coverage you need within your budget. Be sure to compare different packages and see what options are available before you settle on an insurance plan!
You deserve to have peace of mind in your dream home. Looking to purchase a house? Our team of professionals are ready to help you every step of the way. Book a consultation with us today!