Takaful - Wakalah Model

The term wakalah in Arabic means agency. Therefore under the structure, an agency relationship is agreed between two parties to conduct a certain business undertaking. Based on this premise, the model describes an agency agreement between the operators, acting as the agent or “wakil” to the participant as the principal to manage the participation of the latter in a variety of takaful products provided by the operator. In return for rendering the agency services, the operator is permitted to charge a fee under the agreement. The fee is payable from the takaful contribution paid by the participant. In this sense under the above model, management expenditure can be charged to the takaful fund as upfront charges. By this model, the operator earns its revenue from the agency fee described in the aforementioned as well as returns on the investment of its shareholders‟ fund. However, there are also operators practising the above model who charged performance fees on its roles and services of managing the investment of the takaful fund. In the event of a cancellation or surrender, the participant will be refunded of the net balance of his contribution, if any, after deducting all the upfront charges such the wakalah fees and other management expenses from the takaful fund.

General Takaful Wakalah Model Chart

Family Takaful Wakalah Model Chart

EXCERPTS FROM: Mohd Fadzli Yusof, Fundamentals of Takaful (Kuala Lumpur: IBFIM, 2011), pp 29 to 44