Understanding Risk and Insurance: A Comprehensive Guide

2. How do we handle risk? Why is risk important for insurance? Avoidance • Risk is what makes you • decide whether or not • you need insurance. • Risk is what insurance • companies measure when • determining whether to offer • you insurance and how much • it will cost. Retention Transfer Risk = the possibility of financial loss

3. Managing Risks

4. What is Insurance? Insurance is a legal contract that transfers risk from a policyholderto an insurance provider Why You Need Insurance • Protection against loss due tohazard & unexpected events • Compensation for damages for personal belongings • Increased medical bills • Living expenses in disability orserious illness No one can predict the future. Being prepared is the best defence you can have to guard against unforeseen uncertainties

5. TYPES OF INSURANCE

6. TYPES OF INSURANCE

7. Development of Takaful – Malaysia Case Study • Takaful industry is relatively new compared to conventionalinsurance companies in Malaysia. • The National Fatwa Committee of the Malaysian Islamic AffairsCouncil declared the conventional life insurance businesscontradicted with Islamic principles in 1972. • In 1985, the Fiqh Academy of the OIC made a declaration that allforms of conventional insurance do not conform with Islamicprinciples.

8. Development of Takaful – Malaysia Case Study • Takaful Act 1984 was introduced to supervise the takafulactivities since Insurance Act could not be applied to thetakaful business in Malaysia. • Takaful Malaysia Sdn. Bhd. was established in 1984 withpaid-up capital of RM10 Million and there are four takaful operators in Malaysia. • Currently there are 11 takaful operators and 4 retakafuloperators in Malaysia

9. Basic Concepts of Takaful • Al-Mudharabah – means ‘profit sharing’. The takaful operatoraccepts and invests the takaful contributions (Premiums) receivedfrom the takaful participants. The contract will specify how theprofit will be shared between the participants and takaful operator. • Al-Takaful – means joint guarantee whereby the participants jointly guarantee amongst themselves. Any member faced with a calamity will be financially compensated from funds contributed by theparticipants. • Tabarru – refers to elements of ‘donation’. Each participantagrees to relinquish a portion of the takaful contribution to acommon fund that is used to pay a member that suffers a loss.

10. Takaful • Family Takaful • Individual/ family • Retirement annuity • Investment link • Medical and health • General Takaful • Home • Motor • Personal accident

11. Takaful • Family Takaful • Quite similar to the endowment policy in conventional lifeinsurance practice where participants may choose a fixedperiod of coverage. Installment payment can be in Participants Account (PA) and Participant Special Account (PSA). • General Takaful Operation • The protection on short term basis. The participants’contribution is wholly on tabarru (donation) basis and sharingof profits is on underwriting surplus and investment income.Surplus is derived after deducting company’s expenses fromthis fund.

12. Information to consider beforebuying insurance policy • Understand about the types of policies • Carefully assess what you need to protect • Decide how much you want to insure – the level of coverage • Compare *insurance companies and their policies • Ensure to buy insurance through an agent appointed by a licensed insurance company • Making a claim – under what situation & how to make claims

13. In A Nutshell depends on how much money you need to support your lifestyle & pay your expenses when you are critically ill ordisabled due to an illness or accident Amount of life insurance to increase your net worth Life insurance agent appointed by a licensed life insurancecompany & registered with the Life Insurance Association of Malaysia (LIAM) A life insurance agent ensure that you have all the documents needed by the insurance company to speed up the process Making a claim