Understanding Motor Takaful: Principles, Benefits and Protection
Motor takaful is the Shariah-compliant alternative to conventional car insurance. Instead of buying cover from an insurer, you join a shared fund with other participants, and claims are paid from that fund. It offers the same main types of protection as car insurance and is open to both Muslims and non-Muslims.
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What is motor takaful?
Motor takaful is a Shariah-compliant alternative to conventional car insurance. It uses a shared fund, managed by a licensed takaful operator, to provide vehicle protection and cover third-party liabilities.
In Malaysia, takaful operators are regulated by Bank Negara Malaysia (BNM). BJAK is an Approved Financial Adviser (FA) and Approved Islamic Financial Adviser (FIA) by BNM, offering customers access to both conventional insurance and motor takaful comparisons.
The key principles behind motor takaful
| Term | What it means for you |
|---|---|
| Ta'awun | Mutual help. Participants agree to support each other when one of them suffers a loss. |
| Tabarru' | Donation. Part of your contribution goes into the shared fund that pays claims. |
| Wakalah | Agency. You appoint the takaful operator to manage the fund, and it charges a fee for this. |
| Surplus | Money left in the fund after claims and costs. It may be shared with participants, as stated in your certificate. |
| Shariah compliance | The fund avoids interest (riba), excessive uncertainty (gharar) and gambling (maisir), and is overseen by the operator's Shariah Committee. |
Operators do not all use exactly the same model. Your certificate and Product Disclosure Sheet (PDS) explain the contract used, the fees and how any surplus is shared. For a fuller comparison, read takaful vs conventional insurance.
How your contribution works
With motor takaful, you pay a contribution instead of a premium. It is usually made up of two parts:
- The tabarru' portion, which goes into the shared fund used to pay claims.
- The wakalah fee, which the operator keeps for managing the fund, including costs such as commission and administration.
For example, Zurich General Takaful's Z-Driver Takaful PDS lists a wakalah fee of 29.5% of the gross contribution: 10% for commission and 19.5% for management expenses. Fees differ by operator and product, so always check your own PDS.
How much you pay depends on similar factors to car insurance: your car's sum covered, model and age, type of cover, add-ons, location and No Claim Discount (NCD). NCD applies to motor takaful too, and you can check yours with the BJAK NCD checker.
What protection does motor takaful give?
Motor takaful comes in the same three levels of cover as car insurance.
| Type of cover | What it covers |
|---|---|
| Comprehensive | Damage to your own car from an accident, fire or theft, plus third-party injury, death and property damage. |
| Third party, fire and theft | Third-party claims, plus loss or damage to your car from fire or theft. |
| Third party | Third-party injury, death and property damage only. This is the legal minimum. |
Read more about comprehensive, third party, fire and theft and third party cover. Depending on the operator, you can also add extras such as windscreen, flood (special perils) and personal accident cover.
Your protection is also backed by PIDM. Under the Takaful and Insurance Benefits Protection System, general takaful certificates are protected up to set limits if a member takaful operator fails.
How claims and surplus work
When you make a claim, it is paid from the shared tabarru' fund, not from the operator's own money. If money is left in the fund at the end of the financial year after claims, reserves and costs, the surplus may be shared between participants and the operator, which BNM's Shariah Advisory Council allows. Whether you get a share, and how much, depends on your certificate terms and how the fund performed, so do not count on it.
What stays the same as car insurance?
Day to day, motor takaful works much like car insurance. You still need valid cover to renew road tax, NCD works the same way, and you make a claim after an accident in a similar way. Neither option is automatically cheaper, so compare the contribution, benefits and excess. If you plan to change at renewal, see switching from insurance to takaful.
Motor takaful operators on BJAK
You can compare motor takaful from Takaful Malaysia, Takaful IKHLAS and Zurich Takaful on BJAK, alongside conventional insurers. To see their benefits side by side, read compare motor takaful in Malaysia.
Frequently asked questions
Yes. Motor takaful is open to anyone, whatever their religion.
Not always. The price depends on your car, cover and operator, so compare quotes for both.
Yes. NCD applies to motor takaful, and eligible NCD can usually carry over when you switch from conventional insurance.
No. A surplus share depends on how the fund performed and on your certificate terms.
The takaful operator's Shariah Committee, under the guidance of BNM's Shariah Advisory Council. BJAK does not decide Shariah status. Read more in are takaful products on BJAK Shariah-compliant.
Compare motor takaful with BJAK
Check the contribution, cover and certificate terms of each operator before you choose.