UAE Laws and Islamic Finance

Laws of the UAE and Islamic Finance

Indemnity or General Takaful in Islamic Finance


General Takaful provides indemnity to participants who suffer loss relating to their property.  Indemnity refers to replacing the value of the properties and assets to the equivalent of that prior to the damage and/or loss.  The General Takaful contract period usually runs for one year on a renewable basis.  The participants contribute to the Takaful fund based on a Tabarru/donation contract, which is sometimes called a Participant Special Account or PSA.  The Takaful operator raises the Tabarru’ fund and invests the remainder of the fund after deducting the operational cost of the scheme with the goal of obtaining a return. If any participant suffers a loss or damage, then she will be compensated from this fund by considering the level of occurred losses.   The residual of net contribution plus investment profit minus the agency and ReTakaful costs amounts to the surplus.  Any profit or return from the investment is returned back to the fund.  Unlike Family Takaful, net surplus in the General Takaful Fund is shared between the participants and the Takaful operator on expiry of each insured’s insurance policy and the distribution ratio is agreed upon in the contract.  This distribution may be replaced by a reduction in participants’ instalments to avoid the element of Riba in the contract.  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.   In addition, the profit sharing excludes participants who have received compensation from their claims.  At the end of each yearly Takaful contract, the renewability and premium rates can be negotiated.  (AMANIE and

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