The Mechanism of Funds Management in Islamic Insurance

1. The Mechanism of Funds Management in Islamic Insurance
To eliminate the element of riba, the mechanism of fund management and investment in Islamic Insurance is based on mudharabah system . Mudharabah is a contract of partnership on the principle of profit lost sharing whereby one person gives his capital to another to do business and both parties share in any profit or loss according to mutually agreed terms .
A. Azhar Basyir divided the mechanism of policyholders' fund management into two models, the premium with savings account and the premium without savings account .
a. The Premium with Savings Account
In this model, the first premium installment of policyholder is divided into two accounts, Participant's Account and Participant's Special Account (charity account).
The Participant's Account contains of policyholder's savings fund and the Participant's Special Account contains of tabarru' fund, this fund is providing the intention of policyholders to reciprocally guarantee each other to cover payable claims. The latter account usually ranges from 1,25% to 17,50% of premium, depends on policyholder's age and time span of policy. The more the policyholder ages the bigger tabarru' will be. The table of tabarru' can be seen in the table below :

Age Period of Agreement
5 6 7 8 9 10 11 12
18 - 30 1.25 1.25 1.25 1.75 1.75 1.75 2.25 2.25
31 - 35 1.25 1.25 1.50 1.75 2.00 2.25 2.50 2.75
36 - 40 2.00 2.00 2.25 3.00 3.25 3.50 4.25 4.50
41 - 45 3.00 3.25 3.50 4.75 5.00 5.50 7.00 7.50
46 - 50 5.00 5.50 6.00 8.00 8.75 9.50 11.75 12.75
51 – 55 8.50 9.25 10.00 13.25 14.50 15.50 - -
56 - 60 13.25 - - - - - - -

Age Period of Agreement
13 14 15 16 17 18 19 20
18 - 30 2.25 2.50 2.75 2.75 3.25 3.50 3.75 4.25
31 - 35 3.00 3.50 4.00 4.25 5.00 5.25 5.75 6.50
36 - 40 5.00 6.00 6.50 6.75 8.00 8.50 9.25 10.75
41 - 45 8.00 9.75 10.50 11.25 13.25 14.25 15.25 17.50
46 - 50 13.75 16.25 17.50 17.00 17.75 17.25 16.75 -
Source: PT Asuransi Takaful Keluarga
Furthermore, all policyholder's fund from both accounts shall be booked into the Policyholder's Fund Collection and shall be invested prudently yet to gain an optimal profit. The yield of investment is distributed between policyholders and company (shareholders), in an agreed profit lost sharing basis, for example 60% for the policyholders
40% for the shareholders.
The policyholder's yield (60%) shall be booked into Participant's Savings Account and Participant's Special Account proportionally. The Participant's Savings Account shall be paid back to the policyholder when :
1) The agreement is over,
2) The policyholder retires in the time of agreement,
3) The policyholder passes away in the time of agreement.
And the Participant's Special Account shall be paid back to the policyholder when:
1) The policyholder passes away in the time of agreement,
2) The time agreement is over with the net surplus of tabarru'.
Meanwhile, the shareholder's yield (40%) shall be used for pre-operating expenses, initial costs, and fixed assets with the portion 10 – 15% of the yield, and the rest of the yield shall be invested in time-deposits at bank, equity on stock-market, unit trust, direct investment and others with shari’a basis. The return of investment shall be re-accumulated to the principal to cover all the overhead costs disbursed by the company .
b. The Premium without Savings Account
In this model, all policyholder's premium installment shall be booked into Participant's Special Account, then allocated into Accumulated Participant's Fund and shall be invested prudently to gain an optimal profit with shari’a basis.
Furthermore, the yield of investment is allocated into Accumulated Participant's Fund decreased by Company's Operating Expenses. And the net surplus shall be distributed between policyholders and company (shareholders), in an agreed profit-sharing basis, for example 60% for the policyholders 40% for the shareholders.