Observing the tabarru’ rate in a family takaful
- Conference date: 18–20 December 2012
- Location: Palm Garden Hotel, Putrajaya, Malaysia
Takaful system has a built-in mechanism to counter any over-pricing policies of the insurance companies because whatever may be the premium charged, the surplus would normally go back to the participants in proportion to their contributions. In contrast to a conventional insurance company, insurance surplus is not supposed to be a source of return for a takaful company. Any surplus that is a result of overpricing or over-charging is required to be returned back to takaful participants. Similarly, in case of under-pricing, policyholders may be asked to meet any deficit or negative difference between the policyholders’ contribution and the actual claims, benefits and compensation. The objective of this study is to measure the efficacy of a family takaful contract through a simple actuarial model based on deterministic survival assumption. In addition, a linear tabarru’ rate is introduced. The results show that the linear assumption on the tabarru’ rate has an advantage over the flat rate as far as the risk of the prospective loss is concerned.
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