It was not until recently that the doctrine of insurable interest had been unrefutedly adopted in the insurance industry as one of the prime aspects under common law principle. But, a similar phenomenon has not been so far witnessed in Takaful.
There are diversified views among Islamic scholars on the recognition of insurable interest in Takaful practices. Some are in favor, subject to one’s harmonization with the Shariah principle. Meanwhile, some object to it, claiming that there is no basis to justify the idea of insurable interest in the teaching of Shariah.
In this article, however, an attempt is made to scrutinize the fact, whether the common law doctrine of Insurable Interest as practiced in Malaysia can be adopted in Takaful (Islamic Insurance) Industry. If not, what the Shariah alternative module could be suggested in Malaysian Takaful reality.
The idea of insurable interest is one of the key issues that being dealt in insurance industry ever since the notion of insurance had been adopted in the sound society. Although the doctrine of Takaful is able to prove its existence as an alternative scheme to that of insurance practices in the late 20th century, but the issue of insurable interest in Takaful practices, has not been resolved yet.
It is perhaps due to the diversified confusions that haunt equally among the scholars and also practitioners in the field of Takaful. This paper, however, attempts an analysis on the existing provision laid down under Malaysia Insurance Act 1996, whether it can be possibly adopted in the contemporary Takaful practices, and if not, what could be the Shariah alternative solution to the issue of insurable interest, which may suit the Takaful operations in reality.
Existing provision laid down under Section 152 of the Insurance Act 1996:
“…(1) A life policy insuring the life of any one other than the person effecting the insurance, or the life of a person mentioned in subsection (2), shall be void unless the person effecting the insurance has an insurable interest in that life effecting at the time the insurance is effected and the policy moneys payable, or where the policy moneys are payable in installments the discounted value of all future installments under the life policy, shall not exceed the amount of that insurable interest at the time the event resulting in payment of policy moneys occurs.
(2) A person shall be deemed to have insurable interest in relation to another person if that other person is—
(i) his spouse, child or ward being under the age majority at that time the insurance is effected,
(ii) his employee; or
Can the above provision be applied in Takaful?
The provision provided under section 152 of the Insurance Act 1996 on the issue of insurable interest may not be applicable in Takaful practices due to the following reasons:
(i) Less security for the life of insured (spouse, child, ward, employee, etc) as this may give an opportunity to the participant to gain something through using the life of others.
(ii) Contravening the provision relating to hibah (gift) and wasiyah (will).
(iii) The ownership of the benefit over the policy is uncertain (gharar). A transaction which involves the element of gharar is unlawful in Islamic law as ruled out in the Prophetic sanction: “Reported by Said Ibn al-Musayyib (r. a): Verily the Holy Prophet (peace be upon him) forbade from an uncertain transaction”. (Muwatta al-Malik).
Proposed alternative for Takaful
(i) A Takaful certificate insuring the property or life of any one other than the property or person effecting the Takaful, shall be void unless the property or the person effecting the Takaful has an insurable interest legally, morally or spiritually in that property or life effecting at the time the Takaful is effected.
(ii) If a person holds a Takaful certificate on his own legitimate property, the certificate holder shall have an insurable interest on his property should the defined risk occur on the property, and the certificate benefit shall be payable to the certificate holder.
(iii) If a person holds a Takaful certificate on his own life, he himself shall have an insurable interest on his own life should the defined risk occur on him and the certificate benefit shall be distributed, in case of his death, according to the principles of faraid, but in case if he still alive, the benefit of the certificate shall be payable to him.
(iv) If a person holds a Takaful certificate on a life other than himself or on public property which is used for the noble causes (i. e, mosque, Madharabah, rehabilitation centers, orphans’ house, old folk centers, refugees’ center, animal welfare centers, etc), the Takaful certificate holder shall have no any insurable interest in the above circumstances despite the payment of contribution has been made by himself.
The expected benefit over the payment of contribution in this situation, shall be treated as either hibah, wasiyah, waqf or sadaqah, in which the insurable interest shall remain with the person or the property on whom the certificate was bought.
(i) If a person wishes to insure his own life or property by a Takaful certificate against a defined risk is his legitimate right. In the Islamic Shariah, if any one takes an initiative to protect himself or his property from being effected by an unpredicted but defined risk, is by all means encouraged as enshrined in the following Hadith:“ Narrated by Anas bin Malik (r. a), the Holy Prophet (s. a. w) told a Bedouin Arab who left his camel untied trusting to the will of Allah (s. w. t): Tie the camel first and then leave it to Allah (s. w. t)…”. (at-Timirdzi).
From this Hadith, it is concluded that, it is better to take an initiative for protection before a risk occurs.
(ii) But if a person holds a Takaful certificate on a person other than himself or a property with the intention to exercise his right of insurable interest on the life of others or on his disowned property, is like gaining something upon using the life of others or property.
This is again intolerable in the teaching of the Shariah. It may be justified by the Quranic sanction where Allah warned mankind not to gain wealth in vanities.
(iv) If however, a person whishes to hold a Takaful certificate on a life of others or on public property used for the noble causes, the contributions paid by the participant holder shall be treated as a sadaqah or hibah or wasiyah or waqf in favor of the person or the property on whom the certificate has been bought. In other words, the participant holder shall not have any insurable interest in the above situation but the only person or property on whom the certificate has been bought, shall have an insurable interest over the certificate against the defined risk.
In the above situation, the contribution paid is on the basis of moral or spiritual obligation, whereby the payer can expect only benefit rewarded by Allah Almighty for his contribution to noble causes. This may be justified by the traditions of the Prophet, which provides that the donator should not take back his donor nor should take any benefit over the donation.
It is indeed submitted here that, although the modern existing provisions affecting insurable interest may not be justified for Takaful market, but it does not mean that the entire idea of insurable interest should be rejected.
As it is understood that the issue of insurable interest is essential to sustain the consequential benefits over the scheme therefore, the Shariah justified insurable interest should be designed so to ensure that the Takaful operations function with meaningful spirit.
Prof Dr Mohd Ma’sum Billah is adviser and consultant to several companies and Institutions on insurance, banking, financial and IT regulations both under modern principles and Shariah rulings. He can be contacted via email at