Family Takaful Products

Takaful investment plans – Unit Linking System

Under Family Takaful Contracts Membership is issued for longer term where minimum term is 5 years and maximum term can be up to age 85 years. Generally in Pakistan, Family Takaful Operators are issuing Membership under various types of Unit Linked Plans. There are 2 types of funds related with the Participant;

(i) Participant Takaful Fund (PTF) or Waqf Fund and (ii) Participant Investment Fund (PIF). Both these funds are separate from each other and also from Shareholder Fund.

(i) Particiapnt Takaful Fund (PTF) or Waqf Fund

PTF or Waqf is a Shari’ah Compliant takaful pool in which part of participants’ contribution is donated as tabarru for collective benefit of all the members
Its ownership belongs to Allah and no single individual is owner of this fund. It is established as per Waqf Deed and PTF Rules approved by Shari’ah Advisor, Appointed Actuary and SECP. All takaful benefits like Death, Disability, Critical Illness or Medical claims are payable from Waqf as per rules of PTF mentioned in each Participant Membership Document (PMD) and Participant Specification Schedule (PSS). Key characteristics of the Fund are mentioned below:
a) Contribution once donated into Waqf can’t be refunded.
b) All investments of Waqf are invested in Shari’ah Compliant avenues as per Investment policy approved by Sharia Advisor
c) Re-takaful costs, claims, surplus and commission are also deducted from the Waqf Fund
d) Qard-e-Hasan (Interest free loan) if any is also given back to the Takaful Operator from Waqf Fund
e) After setting aside reserves as approved by Shari’ah Advisor and Appointed actuary the surplus is distributable to the eligible participants

(ii) Participant Investment Fund or PIF

Under unit linked membership; besides risk pool or Waqf; part of every contribution of each participant is put into investment account known as Participant Investment Account (PIA), sum of all PIAs is known as PIF.

PIA is sole property of an individual participant and he is free to encash it at any time. The purpose of PIA is only to invest the funds for profit as per Shari’ah principles. At the time of receipt of contribution, portion of the contribution is put into PIA and depending upon the choice of participant (which is usually based upon his risk/return appetite) the amount is utilized to purchase Shari’ah compliant units at offer price and placed into PIA. Participant at any time can encash the available units at bid price prevailing on the day immediately after the receipt of application. Certain percentage of net asset value known as Wakalah Istismar fee (Investment Management Fees) is deducted every month from PIA value and same is credited to Takaful Operator fund.

Level term Takaful plans

Under level term takaful plans, only takaful benefit of death is payable from Waqf for limited term or duration. Key features of level term takaful plans are given below:

  • There is no PIA or Investment account value
  • Takaful benefit remains the same during the term of coverage.

Decreasing term Takaful plans

Under Decreasing Term Takaful plan, only takaful death benefit is payable from Waqf for limited term or duration. Key features of level term takaful plans are given below:

  • There is no PIA or Investment account value
  • Takaful benefit reduces as the time passes. i.e. Initially reducing term takaful of Rs 1 million was issued for the term of 10 years. At the beginning of each year 10% of takaful benefit reduces so at the end of 5 years it shall be 50% of original sum covered of 1 million or Rs 500,000/=
  • This is done against loan taken from the banks under which as the installments are repaid, outstanding loan amount reduces so need for takaful benefit reduces proportionally