AIA PUBLIC TAKAFUL BERHAD

AIA.COM.MY

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 Part A - Basic Takaful, Medical And Health Takaful

Part B - General Takaful

Part C - Family Takaful

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 PART C - FAMILY TAKAFUL

Chapter C1 - Family Takaful Preliminaries

Chapter C2 - Family Takaful Practices: Certificate Administration
Chapter C3 - Family Takaful Practices: Underwriting
Chapter C4 - Family Takaful Practices: Claim
Chapter C5 - Key Considerations in Investment
Chapter C6 - Choice Of Investment Vehicle
Chapter C7 - Introduction to Investment – Linked Takaful
Chapter C8 - Basic Mathematics Of Investment Link Takaful
Chapter C9 - Identifying and Establishing Customer Need
Chapter C10 - Family Takaful Practice : Marketing and Services, Ethics and Code of Conduct

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 | 4

CHAPTER C1

FAMILY TAKAFUL PRELIMINARIES

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***• Family Takaful is a takaful scheme that provides the participant with both a
protection and long-term savings.
• A participant of a Family Takaful will contribute a certain amount of money to a
Takaful fund.
• A part of the contribution will be apportioned to a fund

Participant Investment Fund

Participant Risk Fund (PRF)
(PIF)

• The portion that apportioned to the PRF will be used to fulfill the obligation of
mutual help, should any of the participants face a misfortune arising from death or
permanent disability
• The Takaful Operator will invest the participant’s saving in the PIF and the profit
will be shared between the participant and the Takaful Operator according to a
pre-agreed ratio.
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 MANAGING PERSONAL RISK AND FAMILY TAKAFUL BENEFITS

Death Benefit
❑ In the event of pre-mature death, the loss of income will impact the life-style of the
dependents who are left behind. To ensure the life-style is not affected, the Takaful
representative needs to calculate a death benefit that is sufficient to provide funds
for the family to carry on living without a compromise in their life-style. The death
benefit provided by a takaful plan mitigates the financial impact of death on the
dependents.
❑ The death benefit receivable is equal to the takaful cover plus the participant’s
share of profits credited to the Participant Investment Fund.

*Note: This is a generic version of a death benefit. Some Family Takaful products will
not include the share of profits when the sum covered is paid

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 Disability and Accident Benefit
❑ This coverage is critical in ensuring the participant has sufficient funds to cover the loss of
income and medical care arising from the disability or accident.
❑ This will ensure that the participant does not have to liquidate any assets that have been
accumulated during the lifetime to fund the loss of income. In addition, if long term care is
needed, the accumulated assets may be insufficient to finance proper care for the
participant. A basic takaful plan with a disability and accident coverage will be a good
solution to manage such risks.
❑ The disability and accident benefit is equal to the takaful coverage plus the share of profits
from investments that is credited to the Participant Investment Fund (PIF).

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 Maturity Benefit
❑ A Takaful plan can also provide investment and savings benefits which can be designed
to provide sufficient funds for education, retirement, or a lump sum for enjoyment of life
in the future.
❑ This is provided when the takaful plan is developed to provide a sizeable maturity benefit
at some future date.
❑ The maturity benefit is equal to the total accumulated fund of the Participant Investment
Fund (PIF) plus the surplus (if any) of the Participant Risk Fund (PRF).

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 Surrender Value Benefit
❑ While the above benefits are inherent in the plans described above, the Takaful
plan also has an in-built mechanism to provide some return to the participant in
the event the participant wishes to discontinue the certificate for whatsoever
reason(s).
❑ This value which is built over time as the participant pays the contribution is
called the surrender value. The surrender value is equal to the total amount
accumulated in the Participant Investment Fund (PIF).

Partial Withdrawal Benefit

❑ There may be instances when a participant in a Takaful scheme may suddenly
have a need for funds.
❑ The Takaful plan does offer a remedy through the partial withdrawal benefit,
where the participant can apply to withdraw a certain amount from the PIF.
Usually, the amount that can be withdrawn is about 50% of the amount in the
Participant Investment Fund (depending on the Takaful Operator guidelines).

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 TYPES OF FAMILY TAKAFUL PLANS

• Individual Takaful

Takaful plans are designed to provide the above benefits. The basic plans, which
fall under individual family takaful includes term, endowment, and investment-
linked plans. These plans provide protection, savings, education, retirement,
mortgage, health and annuity coverage.

• Term Takaful

If the certificate owner or life covered under the plan dies within a specified
period, it provides payment of the sum covered only.

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 • Endowment Takaful

Endowment Takaful plans are traditional plans that provide protection as well as some
targeted returns on the contributions paid by the participant. A typical Endowment Takaful
plan provides for payment of the sum covered to nominated beneficiary(ies) if the person
covered dies before certificate maturity.

• Investment-Linked Takaful

Investment linked plans provide both a death benefit and an opportunity for investing a
part of the contribution (for returns) in selected funds managed by the Takaful Operator.
These will be discussed in greater details in the later part of this book (Chapter 7).

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 Types of Family Takaful Riders

❑ Critical Illness Rider

❑ Accidental Death and Disability Rider

❑ Waiver of Contributions Rider

❑ Medical and Hospitalisation Rider

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 Group Family Takaful (employers, clubs, associations and societies) –

The plans include group education, group medical, and retirement.

A minimum number of participants are required to qualify as a ‘group’ under
these plans. Participants will receive protection in the form of financial benefits arising
from death or permanent disability.
Examples of products falling into this category are as follows:

a. Employee Benefit Scheme

Advantages of participating for Employers or Associations:-

❑To portray a caring image of the employer/association

❑To boost employees/members morale and productivity
❑To attract and retain employees/members
❑To enjoy tax deduction
❑To fulfill demand in labour negotiations

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 The plan offers following coverage:-

• Personal Accident cover which provides benefits upon partial/total and/or

temporary/permanent disability due to accident.
• Hospitalizations and Surgical benefits which cover in-patient medical expenses and
outpatient accidental, cancer or kidney dialysis treatment.
• Term Takaful which provides benefits upon death and total permanent disablement

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 Example of Group family Takaful plan are:

- Group Medical and Health Plan

- Group Retirement Scheme
- Rider under Employee benefits

b. Group Credit Takaful

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 CHARACTERISTICS OF FAMILY TAKAFUL PLAN

❑ Long-term contracts
❑ Unilateral contracts.
❑ Contract of adhesion
❑ Permissible Takaful Interest
❑ Duty of utmost good faith
❑ Termination of the contract upon the payment of a claim

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 | 22

CHAPTER C2

FAMILY TAKAFUL PRACTICES:

CERTIFICATE ADMINISTRATION

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 The Takaful certificate is the written evidence of the Takaful contract. In order to be accepted
as evidence in a court of law, a certificate has to be stamped in accordance with the provisions
of the Stamp Act, 1949 (as amended).

1. Heading
The heading will indicate the full name and registered address of the Takaful Operator.

2. The Preamble or Recital Clause

This clause introduces or recites the parties to the contract - the Takaful Operator and the
participant.

3. Operative Clause
This clause specifies the perils covered under the certificate and the circumstances in which
the Takaful Operator will become responsible to make compensation or payment or its
equivalent to the participant or assigned beneficiary or executor. It therefore highlights the
granting of the coverage on the payment of the first contribution and the continuation of the
coverage upon the receipt of the renewal contributions.

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 4. Proviso
The proviso will contain the answers to the questions of the proposal form and the
personal statement which forms the basis of the contract.

5. Schedule
The schedule states the features that are specific to the certificate owner such as:
• The date of the proposal and the details of the participant such as name, address,
occupation, date of birth etc.
• The risks that are covered and their respective quantum, and the name of the individual
to whom the claim amount is to be paid
• The contribution amount and contribution due date,
• The type of plan, certificate number and certificate term (commencement date and
maturity date, if applicable), and
• Any other special provisions and exclusions applicable to the contract.

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 6. Exclusions
Exclusions are restrictions on the scope of the Takaful cover. Exclusions are
inserted in a certificate because certain perils and losses cannot be covered
under the certificate.

7. Attestation or Signature Clause

This clause is called the attestation clause because it makes provision for the
Takaful Operator to attest the undertakings. The certificate is signed by an
authorized official of the Takaful operator.

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 CERTIFICATE TRANSACTIONS

General alterations
a. the time of issuance of the certificate, for example:-
• those affecting the contribution, or its frequency of payment,
• those affecting the sum covered, or its mode of payment,
• those incorporating special benefits, e.g. options to convert the contracts into a
different type.

b. after issuance of the certificate, for example:-

• mode of contribution payment,
• alterations to the terms of the contract,
• imposition or removal of extra contribution,
• change of address.
• change of nominee or beneficiary

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 Endorsements

The certificate documents are often endorsed to record the alterations that
have been made. Each Takaful Operator will have its own procedures for
certificate alterations. In general, the certificate and the participant’s written
instructions must be sent to the Operator’s office for the alteration to be
endorsed onto the certificate document. The endorsements will then become a
part of the certificate.

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ASSIGNMENT OF A FAMILY TAKAFUL CERTIFICATES

• It should be noted that the Section 2 IFSA defined “participant” as the person
who has legal title to Takaful Certificate including the assignee, if such certificate has
been assigned
• An assignment is the transfer of rights and liabilities by one person to another.
In takaful, the transfer of all rights and liabilities of the participant to another person is
referred to as an assignment of certificate.

• An assignee, the person who takes over the assigned rights, will have the same
rights as those enjoyed by the assignor. Thus, the legal rights vested under a family
takaful certificate may be transferred by an assignment.

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 Hibah

Hibah means the giving of ownership of an item to a person without any return, meaning
Hibah is a gift given by a participant to another person voluntarily while he is still alive. This
means that when a takaful participant passed away, the nominee will receive absolute
compensation of the takaful plan.

Benefit of Hibah
a) Income replacement
b) Children’s education fund
c) Settlement of debt
d) Absolute recipient and hassle-free process

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DUPLICATE CERTIFICATE

• When a certificate document is lost or misplaced, a replacement certificate may be

issued by the Takaful Operator.
• The Takaful Operator would require from the participant, amongst other items, the
following before issuing the replacement certificate:-

1. Letter of request;
2. An undertaking to indemnify the Takaful Operator against any eventual loss
due to the issuance of a duplicate certificate.

• The replacement certificate would be stamped “Duplicate Certificate”, and

becomes a valid legal document.

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 PRIVILEGES AND CONDITIONS

The Family Takaful certificate accords certain privileges and defines certain conditions
under which the payment of the sum covered is made. The privileges and conditions in
the certificate can be broadly classified under three groups:

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 ❑ Grace period for contribution payment
❑ Reinstatement
❑ Surrender value
❑ Partial withdrawal
❑ Non-payment of contribution - The non-payment condition constitutes a privilege to
the participant who may have overlooked the payment of his contribution or is
temporarily unable to pay it.

The following methods are generally used for non-payment provisions:-

✓ Automatic Advance

✓ Paid-Up Takaful Certificate

The characteristics of a paid up certificate are:-
• The participant does not have to pay any additional contributions.
• The sum assured is reduced accordingly.
• The original terms of the policy will remain unchanged.

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 RESTRICTIVE CONDITIONS

❑ Suicide clause
❑ Cooling-off period or free-look period
❑ Misrepresentation of age

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 Incontestability clause
In the event that a statement made in the proposal form was misleading, such a certificate
shall not be called in question after 2 years the contract being in-force, unless the Takaful
Operator can show that such statement was made with a fraudulent intention.

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 A Family Takaful certificate does not cover:

1. Death, disablement or medical 2. Death, disablement or medical

expenses caused by:
expenses sustained by the participant:

a. war, warlike operations, strike,

riot, civil commotion; a. while travelling in an aircraft as a
b. insanity, suicide or any attempt member of the crew;
thereat; b. while engaging in motor cycling,
c. venereal disease, infection or hunting, mountaineering, polo
parasites;
playing, steeple chasing,
d. intoxication by alcohol or drugs; water-ski jumping, underwater
and
activities, or any other extreme
e. childbirth, miscarriage or
pregnancy; sports; and
c. while committing or attempting
to commit any unlawful act.

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 CERTIFICATE SERVICING
A Family Takaful certificate is considered terminated when:-

• A participant dies,
• Expiry of the term (length of time) of cover,
• Total benefits paid under the certificate exceeds the maximum limits specified in the Schedule.

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 Definition of “Replacement of Certificates”
“Replacement of Certificates (ROC)” is defined as any transaction involving the participation of
a new family takaful certificate within 12 months before or after, an existing Family Takaful
certificate has been lapsed or surrendered. ROC shall apply to all Takaful Certificates which
have a cash value feature only.

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 The ROC shall NOT apply to the following:

• Where a Takaful certificate has been changed or modified into paid-up Certificate, continued as
Extended Term Takaful or automatic advance from participant’s account (for more than 6 months)
or non-payment of contribution for more than 6 months for Investment-linked Takaful.

• Where a Takaful certificate has been changed or modified to effect a reduction in contribution by
more than 25% via a reduction in sum covered/removal of riders.

• Where a Takaful certificate has been partially withdrawn.

• Where a Takaful certificate belongs to the agent, spouse or children.

Replacement of certificates is detrimental to the participant’s interest and if allowed to perpetuate,

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 RENEWAL NOTICE

For an annual renewable of a plan, for example a Medical and Health Takaful plan, the
Takaful Operator will issue a renewal notice one or two months in advance of the renewal
date to remind the participant that the certificate expires on a certain date and to advice of
any contribution change.

The renewal notice will include all relevant particulars of the certificate including:
• Participant’s name;
• Certificate number;
• Certificate expiry date;
• Annual contribution;
• Revised certificate terms (if any);
• Renewal date.

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 | 41

CHAPTER C3

FAMILY TAKAFUL PRACTICES:

UNDERWRITING

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 ANTI-SELECTION

❑ This is the propensity or urge of individuals who are not healthy to seek for takaful
coverage. If these individuals succeed in securing a takaful certificate, they will
bring a higher than normal risk to the takaful fund.
❑ Underwriting is required to protect the Takaful Operator from such anti-selection
and ensure fairness and equity for all participants.

UNDERWRITING PROCESSES

1) Identification and Evaluation of Risk – Medical Underwriting and

Financial Underwriting

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Medical Underwriting

❑ Age

❑ Gender

❑ Height and weight

❑ Personal and family medical history

❑ Lifestyle, hobbies, travel

❑ Occupational hazards

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Financial Underwriting

Financial underwriting is undertaken to assess the ‘moral hazard’, the ‘true intent’ or ‘true motive’ of
the application for takaful. The underwriter will review:
• the existence of permissible takaful interest,
• the motive for taking the takaful cover,
• whether the takaful cover applied for corresponds to the income and financial standing of the
applicant,
• the nature and number of takaful certificates with the same or other Takaful Operators,
• the timing of the issued certificates, and
• whether any other Operator has rejected any proposal from the proposer and if so, the reasons for
such rejection.

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 Assessment, Evaluation and Classification of Risks

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 Risk Classification and the Underwriter’s Decision

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 The Takaful Operator may still offer a coverage to the proposer subject to
conditions such as:

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 COMMENCEMENT OF RISK

❑ Once the proposal is approved by the Takaful Operator, a letter of acceptance is

issued requesting for the payment of the contribution (usually 30 days). The
Operator will be liable for the sum covered once the contribution is received by the
Operator.

❑ However, if the contribution is not paid within the period stated in the letter, the
Takaful Operator will have to re-confirm the acceptance by requesting a
‘declaration of good health’ from the proposer.

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 The takaful certificate issuance

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 | 50

CHAPTER C4

FAMILY TAKAFUL PRACTICES:

CLAIM

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 ❑ The termination of a Family Takaful contract is usually marked by the
settlement of a claim. A claim can arise under any one of the following
situations:-

1. death of the participant;

2. maturity of the takaful certificate;

3. claims arising under supplementary contracts.

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 ❑ The beneficiary or claimant should notify the takaful operator and provide all of the
following details:-

1. Participant’s name and identity card number

2. Certificate number and participant’s address

3. Date and cause of death, injury or sickness, as the case may be

❑ The operator would then advise the beneficiary or claimant on the procedures to
be followed and documentation needed to provide proof of such event.

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 • The claimant or beneficiary has to provide the takaful operator with documentary
evidence which establishes the death of the participant beyond any doubt.

• the takaful operator would accept any one of the following documents as
proof of death:-

1 a death certificate;
2. a coroner’s report;
3. an order pronouncing a statutory presumption of death, for cases
where the participant has gone missing more than 6 years;
4. a certificate evidencing the death of service personnel and war death;
5. a certificate showing that death has occurred at sea;
6. medical certificate by last medical attendant.

The operator would also request for proof of age of the deceased participant, if this was
not done at the commencement of the contract and to ensure that the claim proceeds
on a death are paid to the person entitled to receive them.

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• There are two types of total permanent disability claims; one is due to natural
causes or illness and the other is due to accidental causes.

1. Documents required for total permanent disability claim due to natural causes or
illness are:
a. medical certification to be completed by the attending doctor after the
participant’s disability;
b. certified true copy of the participant’s identification card;
c. completed claim form.

2. Documents required for total permanent disability claim due to accidental causes
are:
a. medical certification to be completed by the attending doctor after the
participant’s accidental disability;
b. certified true copy of the participant’s identification card;
c. completed claim form; and
d. certified true copy of the police report.

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 For the hospitalization and surgical claims, the following documents are needed:-

❑ Hospitalisation and Surgical claim form;

❑ Takaful certificate number;
❑ Proof of identification;
❑ Attending Physician’s Statement describing the illness, and date of visits;
❑ Copy of Discharge Note or Summary or hospital bill showing admission and
discharge date and diagnosis result for Hospital Benefit Claim;
❑ Original itemized bills (invoice or statement) and original official receipts including
deposit receipts;
❑ All medical test results including MRI, CT scan, dialysis etc.;
❑ Police report (for accident cases only).

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• In the event that a participant survives the term of his certificate, the maturity
amount is payable to the participant.

• The takaful operator would inform the certificate holder of the impending
maturity of the certificate and would request the participant to comply with
certain claim procedures.

• The following are usually required in settling maturity claims: when the
participant is the person covered:-
1. proof of age;
2. proof of survival;
3. discharge voucher completed by the participant; and
4. the original certificate document / contract

• when the the participant is not the person covered:-

1. a deed of assignment or any other title document; and
2. a simple statement that the person covered is alive and is unable or
not available to sign the survival certificate.
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 • For personal accident certificates, the principle of proximate cause is important as
more than one condition can operate leading to a claim. The takaful operator
considers that the claim is brought about by an excluded peril, then the responsibility
to prove this will be on the takaful operator.

• If the takaful operator is satisfied as to the validity of all the documents furnished
and any other inquiries which have been conducted and there is no breach of
the various certificate conditions, the takaful operator will then pay the claim
amount.

• However, where anything is in doubt or is subject to special consideration, the takaful

operator will have the right to carry out an investigation.

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 CLAIM DECISION

Takaful Operator will review all the evidence submitted under each type of claim
and make a decision to pay or repudiate the claim. The reasons for repudiating
liability may be as follows:
• Non-existence of loss as reported;
• The loss or damage was due to the peril that is not covered under the certificate;
• The loss or damage is within the scope of an exclusion of the certificate;
• The certificate has been rendered void as a result of a breach in condition.

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 Compensation on claim amount if claim is not paid on time by the operator.
Para 12 (1) under Schedule 10 (Section 142) of IFSA 2013 states:-
‘where a death claim made under a family takaful certificate, or under a personal accident takaful
certificate is not paid by a licensed takaful operator within sixty (60) days of notification of the
claim,

the takaful operator shall pay a minimum compensation at the rate of the investment yield of the
participant’s risk fund plus one percent or such other rate as may be specified by Bank Negara
Malaysia

on the amount of takaful benefits exceeding the sixty days until the date of payment, the one
percent is to be paid from the shareholders’ funds.’

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 • It is a legal requirement that every takaful operator shall maintain an up-to-
date register of all takaful claims immediately upon the takaful operator becoming
aware of it.

• None of these claims shall be closed as long as the takaful operator is still
liable for the claims and the claims have not been settled.

• The claims register serves as an official record of claims notified to the takaful
operator.

• The claims register could be kept in either a card form or ledger sheet form or
even in computer.

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1. Negotiation and Compromise Settlement - discussion
2. Mediation - The ombudsman for Financial Services is approved by the Bank under the Islamic
Financial Services Act 2013 as a mediator to provide a fair and efficient avenue for financial consumers
to resolve disputes against financial service providers
3. Arbitration - It provides parties to a dispute with a choice other than litigation. Unlike litigation,
arbitration takes place out of court
4. Litigation - A claimant may take the Takaful Operator to court if he is unhappy with the outcome of his
discussion. Litigation is normally the last option as court proceedings will incur a high cost

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 | 64

CHAPTER C5

KEY CONSIDERATIONS IN
INVESTMENT LINKED TAKAFUL PLAN

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 Obligation of the Takaful agent to explain and educate the customers on
the product.

This module, will help Takaful agents understand the basic knowledge of
investment such as
1) how to invest,
2) what kind of investment,
3) when and why to invest.

*Customers must study and consider all key aspects before making any
decision on investment

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 Among the key considerations that the customers must know and understand are as
follow:

❑ Investment Objectives

❑ Availability of Funds

❑ Risk or Security

❑ Investment Horizon

❑ Taxation Treatment

❑ Performance of the Investment

❑ Diversification

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*** 1) Investment Objectives

Knowing the objectives will help the investor choose appropriate

investment instruments and asset classes.

To simplify one can categorize general purposes of investments as those that

will result in

❑ capital growth,
❑ provide income;
❑ or both.

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***
❑ Investment objectives can also change according to one’s situation.

For example is real estate investment,

When people are younger
- they buy a piece of real-estate property because they want to have
capital growth.

Many years after, say during retirement years

- capital growth is now overshadowed by the need for regular income and
the rental from the said property becomes the objective.

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***
If the investor is looking at pooled funds like mutual funds or investment-
linked Takaful, it is very important to first know the purpose or objective
before investing in them.

Following are some objectives:

❑ Income
❑ Balanced
❑ Growth & Income
❑ Long term growth
❑ Speculation

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 2) Availability Of Funds

Income

Extra Money

Your Investment "Bill"

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 3) Risk or Security

• Customer must be aware of their personal risk tolerance when choosing

investments for their portfolio.

• If customer wants to make money, he can't cut out all risk.

• The goal instead is to find an appropriate balance - one that generates

some profit, but still allows you to sleep at night.

• If he wishes to earn a higher rate of return, he must be willing to assume a

higher risk.

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 4) Investment Horizon
Refer to the total length of time that investor expect to hold a
security or portfolio until he need his investment. An investment
horizons increase in length, equity represent a higher risk adjusted
return than fix income securities and cash

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 5) Taxation Treatment

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***
6) Performance of Investment
1. Investment performance is the return on an investment portfolio.

2. The investment portfolio can contain a single asset or multiple assets.

3. The investment performance is measured over a specific period of time

and in a specific currency.

4. Investors often distinguish different types of return.

5. One is the distinction between the total return and the price return,
where the former takes into account income (interest and dividend),
whereas the latter only takes into account capital appreciation.

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***

'pure' net return

is the return net of all fees, expenses, and taxes.

'pure' gross return

is the return before all fees, expenses, and taxes.

Another important distinction is between the money-weighted return and the

time-weighted return.

The former is appropriate if the manager determines the timing of inflows in or

outflows from the portfolio. The latter is appropriate when the manager is not
responsible for the timing of cash inflows into and cash outflows from the
portfolio.

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***
The performance of the investment is depending on the following factors:

1. The country economy

2. Regional and global economy

3. The competencies and capabilities of the fund manager

4. The invested company’s level of costs.

5. Past performance

6. History of the invested company

7. Life cycle of the investment

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*** 7) Diversification
Diversification of investment is defined as the process of investing across the
following:

a. Asset classes
Share, sukuk and cash are all generally not correlated with each other so
owning some of each will help diversify your investment portfolio.

b. Industry
If you own share either directly or in unit trust fund, then make sure there is
adequate representation from different industries.

c. Country
Most investors tend to own too much equity in their home country which
reduces their diversification.

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 | 78

CHAPTER C6

CHOICEOF INVESTMENT VEHICLES

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*** 1. Cash and Deposit 6. . Capital Protected Fund
a. Government Investment Issue
a. Passive Type Products.
b. Bank Accounts
b. Active Type Products.
2. Sukuk
a. Sukuk based on concept of spot sale 7. Islamic Commodity Funds
(salam)
b. Sukuk based on concept of ijarah

3. Shares and Investment

a. Ordinary Shares
b. Preferred Shares

4. Unit Trust

5. Real Estate
Islamic Real Estate Investment Trust
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 1. Cash and Deposit

Cash and deposit refers to all type of liquid instrument with minimal risk or no risk of losing
the principal amount.

Cash and deposit is one of the method of funding the investment. It includes the following:

a. Government Investment Issue

i) Is the Islamic version of marketable debt instrument issued by the Government of

Malaysia to raise funds from the domestic capital market to finance the Government's
development expenditure and working capital.

ii) The central bank, Bank Negara Malaysia in its role as banker and adviser to the
Government, advises on the details of Government securities issuance and
facilitates such issuance through various market infrastructures that it owns and
operates.

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 b. Bank Accounts

a. General Investment Account (GIA)

b. Special Investment Account

c. Foreign Currency Deposit

d. Gold Account

e. Current Account

f. Saving Account

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 2. Sukuk

The word
―sukuk‖ is the plural of the Arabic word
―sakk,‖ which means ―certificate‖.

It is refer to securities, notes, paper or certificate with features of

liquidity and tradability. It is describe as certificate of trust for
ownership of an asset, or certificate of usufructs

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 There are three main cluster of Shariah contract used for Sukuk:

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 Advantages and Disadvantages

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 3. Shares and Investment

Shares, also known as stocks or equities, are the unit of investment in

individual companies.

They have a nominal value for example RM1.00, which when multiplied by
the total number of shares issued forms the issued share capital.

With stocks and shares it's possible for investors to create wealth in three
different ways:

1. To receive an income from them in the form of dividend

2. To hopefully see a growth in their value and sell them at a profit

3. A combination of the above, known as balanced

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 a. Ordinary Shares
Ordinary share represents ownership rights to a corporation.

Advantages and Disadvantages

The advantages of ordinary share are the ordinary shareholders have
the right to vote and to elect the board of director. However, the
disadvantage is the dividend is not guaranteed.

b. Preferred Shares
As with ordinary shares, preferred shares give the holder part
ownership of a company.

Advantages and Disadvantages

Preferred shareholders are given priority in distribution of income
over the ordinary shareholders. Thus, it is a less risky investment with
stable market price. However, preferred shareholders do not have the
right to vote and elect the board of directors.
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 4. Unit Trusts

Funds, such as Unit Trusts are referred to as 'collective' or 'pooled'

investments. They are an investment vehicle made up of different types of
investments chosen by the fund's manager.

The main reasons for investing in funds:

1. Funds help reduce an investors overall level of risk.

2. Funds can lower the cost of building a diversified portfolio yourself.

3. Funds reduce the need to select and manage your investments.

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 Advantages and Disadvantages

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 5. Real Estate

Real estate investing involves the purchase, ownership, management, rental and/or
sale of real estate or profit.

Real estate is an asset form with limited liquidity relative to other investments, it is
also capital intensive and is highly cash flow dependent.

Apart from investing in the original form of real properties, investor can also invest in
a new form of real estate investment, Real Estate Investment Trust (REITs).

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 a. Islamic Real Estate Investment Trust (I-REITs)

An Islamic REIT is defined as an investment vehicle that invest its assets in real
estate, whether through direct ownership or through a single purpose company
whose principal asset comprises a real asset.

It is a new of investment vehicle that provide investor the opportunity to invest in real
estate

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 Advantages and Disadvantages

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7. Capital Protected Fund

There are two main types of capital protected products available in Malaysia. These
can be broadly described as:

a. Passive Type Products.

In such a product, the bulk of the amount invested is used to buy low risk assets
that are expected to accumulate in value over the term of the product to protect
the full value of the original capital.

The rest of the amount invested is then used to buy options, from which the
potential upside of the product is expected to be obtained.

However, it should be pointed that the influence of profit rates on these types of
products.

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 b. Active Type Products.

In a sense, these are similar in nature to the balanced products offered as normal
investment products.

The difference is that there is a guarantee given that the eventual return of the
product will not be negative.

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 7. Islamic Commodity Funds

An Islamic commodity funds are funds in that have direct holdings in commodities
which comply with Shariah principles.

For example, a gold fund that holds gold bullion would be a true commodity fund.

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 There are several requirements that must be met to comply with Shariah principles.

• The commodity must be owned by the seller at the time of sale. Short
selling is not permitted but forward sales are allowed under bai’ salam and bai’ istisna.

• The commodity traded must be halal i.e. permissible.

• The seller must have physical of the commodity to be sold.

• The price of the commodity must be fixed and known to the parties involved
as any uncertainty will renders the sale invalid.

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 Advantages and Disadvantages

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 | 97

CHAPTER C7
INTRODUCTION TO
INVESTMENT- LINKED

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Investment Linked Takaful is a Family Takaful Plan that combine
investment and Takaful cover

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***
1. Single Contribution Investment Linked Plan

A single contribution investment linked plan features a single lump-sum

contribution payment which will be used to purchase unit in the investment
linked and provides certain level of life cover.

It provides a death and/or total permanent disability cover of 125% of the

lump-sum investment or minimum of RM5,000.

In Malaysia the minimum contribution for single contribution plan is

RM3,000.

Benefit payments will be to the sum assured or the value of the investment
units at the time of claim, whichever is higher.

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AIA Public Takaful Bhd. confidential and proprietary information. Not for distribution. 100
***
2. Regular Contribution Investment Linked Plan

❑ The plan to provide the investor choice of paying the contribution on

regular basis i.e. on monthly, quarterly, half yearly or yearly basis.
❑ The plan provides the investor/participant the flexibility to increase the
contribution and coverage when their finances improve in the future.
❑ The basic Takaful coverage, in the event of death and/or total
permanent disability, is based on multiple of the annual contribution.
❑ Based on the latest guideline on investment linked issued by Bank
Negara the minimum Sum Assured Multiplier (SAM) for regular
contribution plan is based on individual Takaful Operator practice
❑ The benefit payment will be the total of sum assured plus the value of
the investment units.

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***
1. Investment Linked Individual Retirement Plan

❑ The Takaful plan that is designed to provide a retirement income

for life with the freedom to maximise your investment returns.

❑ Retirement plan normally requires high allocation from the

contribution to accumulate sufficient fund until reaching the
retirement age.

❑ Once reached the retirement age, the fund will be used to

participate in traditional annuity or investment linked annuity
plan.

❑ Previously, there was no protection element in this plan. The sole

focus of this plan was to provide investment return. However,
recently there was an introduction of protection element funded
via cancellation of unit.
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***
2. Investment Linked Critical Ilness Plan

A Takaful plan that is designed to provide a lump sum amount if the

certificate owner contracted anyone of the critical illness such as heart
attack, stroke, coronary bypass, renal failure, etc.

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***
3. Investment Linked Education Plan

The plan specially designed as a savings tool to provide an amount of

money when the child reaches the age for entry into college (18 years
and above).

The funds can be used to pay for child's higher education expenses.

Under this plan, the child is the life assured, while the parent/legal
guardian is the certificate owner.

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AIA Public Takaful Bhd. confidential and proprietary information. Not for distribution. 105
 Investment-linked Takaful has the following unique features:

1. Flexibility to choose the level of protection and investment.

2. Can vary the amount of contribution according to changing financial

circumstances.

3. Can switch current investment fund to other types of investment funds.

4. Can redeem part of investment-linked units at any point of time.

5. Can choose from a variety of investment funds (equities, bonds or other

financial instruments) to invest in.
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Investment-linked Takaful has the following benefits:

1. Diversification of Fund.
2. Diversification of Risk.
3. Dollar Cost Averaging.
4. Professional management.
5. Reduced Transaction Cost
6. Liquidity
7. Wide Investment Objectives.
8. Various Services

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***
Market

Country Liquidity

Currency Profit Rate

Risk
Non- Credit/
Compliance Default

Reclassification
of Shariah Investment
Status
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*** We can classify seven mains categories of investment linked funds in Malaysia:
(1) Income
Funds

(7) Specialised
(2) Growth Funds
Fund

(6) Managed Fund (3) Balanced Funds

(5) Property Fund (4) Cash Fund

113
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*** 1. Income Funds
An income fund is a fund that is structured to provide maximum
income by selecting investments that typically provide dividends or
profit.

2. Growth Funds
The primary goal is capital appreciation of the securities represented
therein. That is, the investor does not expect dividends and most
returns on investments come in higher net asset value. This involves
investing in companies with higher risk than other portfolios.

3. Balanced Funds
A balanced fund is a fund that invests in shares, sukuk and deposit
investments. The proportion of investments varies by the balanced
fund, but the investment goals are similar: to conserve principal,
provide a source of income, and provide a level of long-term growth.
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***
4. Cash Fund
The cash fund invests in Shariah compliant cash equivalent securities
and Shariah compliant unit trust funds whose underlying assets are
non-equities such as sukuks and Islamic money markets.

5. Property Fund
Property fund is a fund that hold portfolios of real estate and real
estate related financial instruments for the benefit of the investment.
Real estate held by property fund includes multifamily residential,
retail, office, industrial, health care, and hotel properties and self-
storage facilities; the financial instruments held by property fund are
construction and development loans, mortgages, and mortgage-
backed securities.

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***
6. Managed Fund
A managed fund is an investment fund that is managed professionally by
an expert fund manager who invests in a variety of investments. The
actual type and mix of investments within the fund depends on a
predetermined mandate communicated by the Fund Manager.

7. Specialized Fund
This type of fund is meant to specialize in a certain sector, industry, or
area of the world. There is very little diversification with a specialized
fund, so it is important that the proper decisions are made for all
involved.

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*** Every investment linked fund has its own risk-return profiles. The higher the
return from the fund, the higher the risk. For example, equity fund normally
pays higher return thus the investment risk is higher. Vice versa, cash fund
normally pays very low return thus the investment risk is high.

Above is the risk-return graph that showing the higher the risk, the higher the return.
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***
This facility is very useful in financial planning. For example, an investor that
started investing at the age of 40 may want to change the asset allocation
when he reached age 55. His risk profile at the age of 55 may differ from
the age of 40.

The practice of switching differs from one Takaful operator to another

operator.

The practices are as follow:

1. Takaful operator offers free of charge for any switching during the year.

2. Takaful operator offers free of charge for a limited number of switches

within a given period.

3. Takaful operator charge for each and every switch.

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 | 119

CHAPTER C8

BASIC MATHEMATICS OF INVESTMENT LINK

TAKAFUL

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***
1. Value per unit

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***
2. Investment

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***
3. Protection

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***
4. Cash value

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• Participants can make top up anytime during the duration of contract. Top
up will be used to purchase additional unit ( after deduction top up fee)

Based on the Guide issued by BNM, the benefit under sigle contribution are:

❑ RM 5,000 or 125% of the single contribution whichever is higher

❑ For older ages and substandard lives, subject to minimum RM 5,000 or

105% of single contribution

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• After ILT certificate has been inforce for a specified period the participant
may request for the contribution holiday facility where the participant does
not require to pay his regular contribution for a certain period, it is depend
on the PIF value accumulated

• Participants may request a partial cash withdrawal at any time before

maturity of their certificate, The withdrawal can be made in term of
number of unit or fixed monetary amount

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❑ Surrender value

❑ Maturity value

❑ Free Look Period

❑ Death Benefit

-Unit Value plus sum covered

-Unit Value or death cover (whichever is higher)

❑ Surplus Distribution

❑ Fund Performance Report and Statement to Participants

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 | 127

CHAPTER C9

IDENTIFYING AND ESTABLISHING

CUSTOMER NEEDS

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 ❑ Takaful agent is facing new challenges which are very different compared to 15
years ago. The new financial landscape whether globally or locally has made
everyone become more cautious before getting into any investment portfolio .

❑ Knowledge of how different financial market mechanisms work.

❑ Identify and establish a customer’ s need and agent will required to apply the
relevant knowledge and understanding.

129

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 ❑ Agent have to begin this process by establishing a relationship with the client.

❑ The agent have to convince the client ,assist the client fulfill the client
financial goal.

❑ Must ask the right question to find out why there are looking.

130

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 ❑ Customer’s Personal and Dependents detail

❑ Life and financial priorities and Goals

❑ Risk profile

❑ Net worth Analysis

❑ Cash Flow Analysis

❑ Recommendations and record of advice

131

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 ❑ Adequate coverage

❑ Planning for children’s education

❑ Retirement planning

❑ Asset accumulation

❑ Estate planning

132

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 ❑ The agent should also listen to the client’s concern and revise the
recommendation as appropriate.

❑ Try to thinking of duplicating one strategy or plan for multiple client.

133

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 - The client and agent should agree on how the recommendation will be carried
out.

134

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 ❑ Regular monitoring to be informed of the progress of the policies.

❑ The agent must be sure that client gets all report quarterly and yearly.

❑ The agent also has a moral obligation to ensure that the funds growth are
tandem with the initial objectives established .

❑ The agent must assist the client to make the necessary switching and
adjustment to ensure that client get best return from the certificate .

135

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 Agents must commit themselves to providing continuous service over the term of the
takaful plan. One avenue for this, is to undertake a certificate review on a half yearly or
yearly basis, or when there is a change in the financial circumstances of the client.

136

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 | 137

CHAPTER C10
FAMILY TAKAFUL PRACTICES:
MARKETING AND SERVICES,
ETHICS AND CODE OF CONDUCTS

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 The issues about ethics and code of conduct for agent have been an on-going
concern for all stakeholder since the first Takaful operator started operations in
Malaysia way back in the late 1980s
The growth of this industry has been impressive, out-performing their
conventional counter parts consistently in the past ten years. Market becoming
more competitive due to new entrants, finding new ways to increase, develop
and improve skill to intensive training On marketing and services as well.

138

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 For the beginners, the following information is indeed a ‘must know’ in
their goody bags when facing their prospective clients:

❑ Introduction
❑ General Sales Principles
❑ Definition of Replacement of Certificate
❑ Explanation of the contract
❑ Disclosure of Underwriting information
❑ Account and Financial aspects

139

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 Introduction

1. Term ‘ family takaful’ used in the code of ethics and conduct overall all types
of :
a. Home Services
b. Ordinary Family
c. Annuities
d. Pension Scheme
e. Investment-Linked Takaful and
f . Permanent Health Takaful

2. The Code applies to all intermediaries, i.e. all persons, including staff of a
takaful operator who markets any of the family takaful products.
Registered insurance brokers and/or takaful brokers are specifically
excluded, as they are subject to a separate professional code of
conduct.
140

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 3. The onus is placed on the member companies of Malaysian Takaful
Association to enforce the code and to use their best endeavors to
ensure compliance with the various provisions of the Code, by all those
involved in marketing the certificates.

The Audit/Disciplinary Committee of the takaful operator is responsible for

monitoring compliance by Family takaful intermediaries. The Committee is
also responsible for the submission of the quarterly report to Bank Negara
Malaysia on breaches observed in a quarter and the corrective or punitive
actions taken.

141

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 4. In the case of complaints from the participant that an intermediary
has acted in breach of the Code, the intermediary shall be required
to cooperate with the takaful operator concerned in establishing the
facts. The complainant shall be informed that the complaint can be
forwarded to the relevant takaful operator, if not so referred.

5. It is stressed that an overriding obligation of an intermediary is to

conduct business at all times with utmost good faith and integrity.

142

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 ii. General Sales Principles

- Code of Ethics and conduct

The intermediary shall:

❑ when making contract ,make it known that the agent is representing

which of the takaful operator and producer
❑ Ensure as far as possible that the certificate proposed is suitable to the
client’s need and not beyond the client ‘s financial resources.

143

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 ❑ Give advice only those matter in which the agent is competent to deal with
and seek or recommend other specialist advice if this seems appropriate
❑ Maintain all information supplied by the prospective participant must be
kept completely confidential
❑ When making comparisons with other types of policies, takaful certificate
or other form of investment ,make clear the different characteristics of
each policy/ certificate / investment, without specifically mentioning the
name of the name takaful operator
❑ render continuous service to the participant

144

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 ❑ Definition Of Replacement of Certificate
To discontinue a certificate or to have a certificate made paid-up and then
to effect a new one with another takaful operator or the same takaful
operator

❑ Explanation of the contarct:

i. The intermediary shall

– explain all the essential provision
– Draw attention to any restriction including exclusion under the
certificate
– Draw attention to the long –term nature of the certificate

II. Where a certificate offer profit –sharing ,or otherwise depending on a

number of variable factor such as investment, performance and
description .
145

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 III. It should be made clear that they are based on certain
assumption,

– Disclosure of Underwriting Information

i. avoid influencing
ii. Ensure the consequence of non-disclosure and
inaccuracies.

146

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 Account and Financial Aspect

❑ The intermediary shall:

1. Acknowledge receipt

2. No delay any money received for family takaful.

147

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 This part deal with the following aspect:

1. Code of Ethics
2. Coverage
3. Monitoring Devices
4. Seven Principle of the guidelines
5. Code of conduct

148

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 • For Family Takaful Agents

❑ Newly contracted agents and the financial institution employees (regardless of

their levels) are required to complete minimum mandatory training of 20 hours for
Family Takaful

❑ 12 hours for General Takaful within the first 6 months of appointment.

149

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 The Seven Principle Underlying The Guidelines
❑ To avoid conflict of interest
❑ To avoid misuse position
❑ To prevent misuse of information
❑ To ensure completeness and accuracy of relevant
record
❑ To ensure confidentiality of communication and
transaction between the Takaful operator and its
participant.
❑ To ensure fair and equitable
❑ To conduct business with utmost good faith and
integrity
150

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 The part deals with the following aspect :

1. Introduction
2. Claims
3. Proposal Form
4. Certificates and Accompanying Document
5. Sales Material / Advertisement

151

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 Introduction

❑ To reduce the formalities involved in the issue of new Certificate and payment of
claim. BNM came up with guidelines called ‘Proper Advice Practice for Family
Takaful Business’
❑ The audit / Disciplinary committee Of Malaysia Takaful Association is responsible
for monitoring compliance with the guidelines by member Takaful operator.
❑ It also responsible for submitting report to BNM on the breaches and the corrective
or punitive action taken

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 Claims :

❑ The guidelines require that Takaful operator may not unreasonably reject a
claim.

❑ The claim will not be expected to do more than report a claims and
subsequent developments as soon as reasonably possible

❑ On the claimant proving the covered event and the right to receive the claim.

❑ Not collect any claim processing fees from the participant or the beneficiary.

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 Proposal Forms

❑ Proposal form requires the disclosure of material fact ,then statement should be
included in the declaration or prominently displayed elsewhere on the form or in
the document or which it forms a part.
– Drawing attention
– Warning that if the prospective participant is any doubt about whether
certain fact are material, these fact should be disclosed.

❑ Takaful operator shall provide a copy of the signed proposal form to the
participant together with the original certificate.

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 Certificates and Accompanying Document

❑ Takaful Operator will continue to develop clearer proposal form and

certificate document

❑ The Certificate and accompanying document must indicate whether there

are right to surrender value.

– That these are long-term contract

– Surrender values , especially in the early year are often less than
the total contribution paid,

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 ❑ Takaful Operators will ensure that information contained sales material and
advertisement are correct and truthful and thus not misleading to the public.

❑ This will ensure that the business is being conducted in compliance with the
requirement of Shariah at all times

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 | 157

THE END

AIA AIA
Public
confidential
Takaful Bhd.
and proprietary
confidentialinformation.
and proprietary
Not for
information.
distribution.
Not for distribution. 157