The concept of insurance can be confusing and overwhelming, especially when it comes to understanding the differences between family takaful and conventional life insurance. In this article, we will explore what sets these two apart. This could help you make an informed decision about which type is best for your needs. We'll discuss how each plan works, their benefits and drawbacks, and more. By the end of this article, you should have a better idea of which option is right for you.
Both family takaful and conventional life insurance offer financial protection for your loved ones in the event of your demise, but what are the key differences between the two?
Family takaful is a Shariah or Islamic law compatible coverage that is based on the principles of mutual assistance and risk sharing. “Takaful”, derived from the Arabic word “kafalah” means to guarantee or look out for one’s needs. In the occurrence of unexpected event upon the Takaful participants, the financial aid will be taken from the Takaful fund donated by the participants based on the concept of “Tabarru’” which means donation.
Conventional life insurance works by providing a death benefit in exchange for paying the premium. Thus, the risk is transferred from an individual to the conventional insurance provider.
There are many benefits that come with takaful (Islamic insurance) compared to conventional insurance. Some of these benefits include:
The main difference is that the participants (members) of family takaful plan share the risks and rewards together, whereas in conventional life insurance, the insurer shoulders all the risks and rewards.
In family takaful, participants contribute monthly or yearly contributions to a common pool. The pool is then used to pay for valid claims made by participants. Any surplus in the pool is shared among the participants, while any pay-outs are also subject to the financial health of the pool.
Contrastingly, for life insurance, claims are paid out by the insurance company itself, so pay-outs are guaranteed as long as the premiums are paid which means the insurer will bear both the risks and rewards. Should there be more claims than expected, the insurer must cover them from its own reserves.
Another key difference is that family takaful is often structured as an investment product, while traditional life insurance is not. This means that with family takaful, you not only have protection against death or critical illness, but you can also grow your money over time. With traditional life insurance, the death benefit is the only pay-out you will receive.
So, which one is right for you? It really depends on your needs and preferences. If you're looking for guaranteed pay-outs and want the potential to grow your money over time, then family takaful may be a good option for you. Here’s a list of takaful and conventional insurance providers in Malaysia for you to refer to.
|Operates based on cooperation and sharing||Operates based on commercial factors of the organisation|
|Abide by Shariah laws & government laws||Abide by government laws|
|Takaful contributions and shareholder capitals must be invested in Shariah compliant investments only||Premiums and capitals can be invested in any investment channel, and it is not necessary to be Shariah compliant|
|Free from elements that may be considered Riba (interest), Gharar (uncertainty), and Maysir (gambling)||May have risk of investing in elements of interest, gambling, and uncertainty|
|Risk is shared and distributed among takaful participants who jointly agree to bear this risk||Risk is borne by the conventional insurance provider instead of the insured individuals|
|Low claim rates: Results in profit sharing between participating members and shareholders||Low claim rates: Profits and money belong to shareholders and the insurance company|
In conclusion, family takaful and conventional life insurance are both important financial tools for protecting your loved ones in the event of an unexpected death. While they have some similarities, there are also several key differences between them that should be taken into consideration when deciding which type of policy is best suited to meet your needs. Ultimately, it's up to you to decide which option provides the most comprehensive coverage at a price point that fits within your budget.
Life insurance or family takaful plans are essential to ensuring that your loved ones are financially supported in the event of your death.
WithFWD Protect Direct, our family takaful plan ensures that your loved ones' futures are protected from life's curveballs from as low as RM11.17/month. The plan comes with a death benefit of up to RM500,000 which will be paid to your beneficiaries. The lump sum pay-out can be used to cover funeral expenses, support the living expenses of your loved ones while they get back on their feet, clear outstanding debts, or liabilities that you may have, and more.
The plan also comes with a waiver of contribution benefit, which means that your family’s contribution will continue to be paid for upon your death. This ensures that they remain covered in your absence. You can opt to participate in the term plan as an individual or cover up to 4 family members in one plan.