In this chapter, you will learn to:

Describe the concept of risk and

CHAPTER 5:
insurance / takaful (LO2, C1) LEARNING
OBJECTIVES
Identify the importance of
insurance /,takaful (LO2, C2)

Evaluate types of insurance / takaful (LO2,

C4)

outline the process of insurance / takaful

claims in Malaysia (LO2, C2)
Basic of risk
management
of cancer patients in Malaysia suffered
from financial catastrophe one year
after diagnosis
breast cancer treatment could reach
up to US$15,000 (RM65,000) per year

could not pay for medication and 35%

for medical consultation fees or tests
Importance of
Insurance/takaful
• It provides financial security and
peace of mind to individuals,
businesses, and organizations.
• Insurance helps to cover medical
expenses, property damage, liability
claims, and other unforeseen events
that can lead to significant financial
losses.
• It also promotes economic stability
by spreading the risk of loss across a
large group of individuals or
businesses.
• it helps to mitigate financial risks
TAKAFU Takaful is an Islamic alternative to conventional
life insurance, adhering to Shariah principles.
Takaful operates on the concept of mutual
cooperation and shared responsibility among

L
participants.
.
Principles of Takaful:
• Tabarru': Participants contribute to a common
fund, known as the Tabarru' fund, which is
used to provide benefits to those in need.
• Mudarabah: The Tabarru' fund is managed by a
takaful operator as the Mudarib, who invests
the funds in Shariah-compliant investments.

Types of Takaful Policies:

• Family Takaful: Similar to life insurance, family takaful
provides financial protection to the participants'
beneficiaries in the event of their demise.
• General Takaful: This type of takaful covers non-life
risks such as property, motor, and travel.
Newly
Married
Married with
Kids

Soon to
Retire
L I F E
INSURANC
E
• Life insurance is a contract between an
individual (the policyholder) and an
insurance company.
• The policyholder pays regular premiums,
and in return, the insurance company
Single provides a lump sum payment, known as
Professional
Retired
the death benefit, to the policyholder's
beneficiaries upon their demise.
Life
Insurance

Term life insurance

• Term life insurance provides coverage for a specified
period, typically 10, 20, or 30 years, and pays out a
death benefit if you pass away during that time.
• If the insured person dies during the term of the policy,
the beneficiary named in the policy receives a death
benefit payout.
• Once the term of the policy ends, coverage ends as well,
and there is no cash value accumulation.
Life
Insurance

Whole life insurance

• Whole life insurance is a type of permanent life
insurance that provides coverage for the entire lifetime
of the insured.
• It offers a death benefit as well as a savings
component, known as cash value.
• Premiums for whole life insurance are typically higher
than those for term life insurance, but they remain
constant for the duration of the policy.
• This type of insurance can also provide tax benefits and
may be used for estate planning purposes.
Life
Insurance

Endowment insurance
• Endowment insurance is a life insurance policy that
pays out a lump sum of money at a designated date in
the future or to beneficiaries in the event of the
policyholder's death.
• They have both a savings and a death benefit
component, making them popular for providing financial
security and funding long-term goals.
• They typically have higher premiums but offer the
added benefit of a guaranteed payout at a specified
time.
Life
Insurance

Investment-linked insurance
• Investment-linked insurance is a policy that combines
life insurance coverage with investment opportunities.
• A portion of the premium payments is invested in
different types of funds, chosen by the policyholder
based on their financial goals and risk appetite.
• This investment component can potentially grow over
time, providing an opportunity to accumulate wealth,
while the policy also provides life insurance coverage
that pays a death benefit to beneficiaries in the event of
the policyholder's death.
Life
Insurance

Life Annuity Plan

• An annuity is a series of payments paid to you until
you pass away.
• There are two types of annuities:
• Immediate annuity – the payments begin within
12 months after you buy the annuity. Those who
are about to retire or have already retired will
choose this type.
• Deferred annuity – the payments begin more
than 12 months after you buy the annuity. People
will buy this type during their working years to
provide retirement income later in their lives. •
 Supplementary rider/cover
• A rider is a supplement attached to the basic
insurance plan, such as an endowment or whole
life. It gives you flexibility to meet your individual
needs, such as cover against accident, disability or
hospitalisation. You will need to pay additional
premiums.
Health
Insurance

Disability income insurance

provides an income stream to replace a portion of
your predisability income when you are unable to
work because of sickness or injury.

Hospitalization and surgical insurance

This type of insurance can help alleviate the
financial burden associated with hospital stays,
surgeries, and other medical procedures, such as
anesthesia and postoperative care.
Health
Insurance

Dread Disease, or Critical

Illness Insurance
provides you a lump sum benefit upon diagnosis of
any of the 36 dread diseases or specified illnesses.

Hospital Income Insurance

pays you a specified sum of money on a daily,
weekly or monthly basis, subject to an annual limit,
if you have to stay in a hospital due to covered
illness, sickness or injury.
Property
Insurance

Mortgage Reducing Term Assurance

• Mortgage Reducing Term Assurance (MRTA) is a type of

life insurance that covers the outstanding balance of a
borrower's mortgage in the event of their death.
• The coverage amount decreases over time as the
outstanding mortgage balance decreases.
• It is important to note that MRTA only covers death and
not other types of disabilities or illnesses.
Property
Insurance

Homeowners insurance
This type of insurance provides coverage for property
damage and theft. It’s designed to protect homeowners
from the financial burden of repairing or replacing their
home and belongings in the event of damage or theft.

Renter’s insurance
This is designed for people who rent their living space. It
provides coverage for a tenant’s personal belongings in
the event of damage or theft. It can also provide liability
coverage if someone is injured on the premises.
Motor
Insurance

Comprehensive coverage vs.

third-party coverage
Comprehensive coverage is a type of insurance that covers
damage to your vehicle due to accidents, theft, and other
risks, regardless of who is at fault. Third-party coverage, on
the other hand, only covers the damage you cause to other
people’s property or injuries you cause to other people.

No-claims discount
A no-claims discount (NCD) is a discount on your premium
that you earn for each year you don’t make a claim on
your policy. The more years you go without making a
claim, the larger the discount.
Property
Insurance

Fire insurance
This is a specific type of property
insurance that covers damage and
losses caused by fire. It typically
covers the cost of repair or
replacement of damaged property, as
well as any injuries incurred as a
result of a fire.
 Travel Insurance
• Travel insurance is a policy designed to
cover unexpected events during travel,
including medical expenses, trip
interruptions, lost or stolen baggage, and
other travel-related expenses.
• It can provide peace of mind, especially for
those traveling to unfamiliar destinations.