Owner-occupier or landlord: protecting your property through takaful

Takaful homeowners insurance protects the walls, fixtures and the owner's liability through a mutual fund of donations managed by an appointed operator. In Europe, with no such operator available, the property is insured with authorised conventional companies instead.

Owner-occupier or landlord: two different needs

An owner who lives in the home insures the structure, the contents and personal liability. One who lets it out mainly needs non-occupying owner cover, which protects the building when the tenant's policy does not respond or turns out to be insufficient.

Roof, walls, pipes: the buildings sum insured

For an owner, cover for the structure weighs far more than cover for furniture. Under takaful, compensation stays capped at the actual loss, in line with the pure-risk principle restated in the takaful FAQ of State Life, a Pakistani insurer.

A house bought through murabaha or ijara

Under ijara the bank keeps ownership until the final transfer; under murabaha it resells the home at a margin and takes security. It then requires buildings cover, often alongside an Islamic home finance protection policy for the buyer.

French mourabaha and the insurance that goes with it

Tax instructions issued in 2009 and 2010 frame mourabaha in France without removing the cost of double transfer duties. Chaabi Bank finances private buyers there, but no dedicated takaful borrower insurance has been identified to accompany these transactions.

Unpaid rent: compensating a loss, not a return

A landlord who wants to protect rental income must check that the cover makes good a real loss and not an expected gain. Takaful covers only pure risk; income presented as guaranteed whatever happens would fall into speculative risk.

Flats: the part the managing agent already insures

In a block of flats, common parts are usually covered by a collective policy taken out by the managing agent, over which each co-owner has little say. Owners do choose cover for their private parts, which limits the scope of any takaful approach.

A buildings line that does not pay for the others

The operating framework proposed by Bank Negara Malaysia in May 2018 prohibits cross-subsidies between takaful funds. Surpluses in the property line must therefore not absorb losses from another of the operator's activities, such as health or transport cover.

How much of the surplus the operator may keep

In Malaysia, the operator may take at most 50% of a surplus in the participants' risk fund. Owners should read the allocation clause before comparing contributions; our page on surplus in takaful sets out the rules in detail.

A destroyed building: retakaful steps in

A fire that wrecks an entire building exceeds the means of a small fund. The operator then protects itself with a retakaful fund, the Islamic alternative to reinsurance described by IFSB-18 in April 2016, in which risk is shared rather than transferred.

Who certifies that a property policy complies

In Pakistan, the SECP takaful rules require each operator to have a Shariah Board of recognised scholars and an annual sharia audit. An owner can demand comparable safeguards, described on our page about the sharia committee.

Property located in France, Belgium or Switzerland

Without a specific framework, a property in these countries is insured with companies authorised under general law and, within the Union, Solvency II. In Switzerland, a foreign insurer covering a local risk must open a branch authorised by FINMA.

A second home in the country of origin

Many diaspora owners hold a home in the Maghreb. For a property in Morocco, see our page on Islamic insurance in Morocco to identify local operators, then compare their policies with conventional offers before choosing the cover that suits you.

Insuring your property with takaful: how to proceed

1. Clarify your situation: owner-occupier, landlord, co-owner or buyer under murabaha or ijara, since the covers needed differ.
2. Check with the regulator of the country where the property lies that a takaful operator is licensed there for general insurance.
3. Have the rebuilding value of the building assessed, which differs from the purchase price that includes the land.
4. Read up on the wakala or mudaraba model, the sharia committee's fatwa and the surplus-sharing clause.
5. Make sure the cover required by the Islamic bank appears in the policy, with the bank named as beneficiary.
6. If a loss occurs, report it quickly, provide quotes and photos, and keep receipts for any emergency repair.

Cost components for a property owner

Documents to gather to insure a property

• Title deed or notarial deed
• Murabaha or ijara financing agreement, where applicable
• Description of the property: floor area, year built, materials, outbuildings
• Current lease and the tenant's insurance certificate if the property is let
• Co-ownership regulations and the managing agent's name for a flat
• Proof of identity of the owner or owners

Costly mistakes for owners

• Insuring the property at its purchase price, land included, instead of its rebuilding value, which inflates the contribution without improving compensation.
• Relying solely on the tenant's insurance, which does not cover every loss affecting the building nor periods when it stands empty.
• Signing Islamic financing without checking that the cover required by the bank is in place on the day the keys are handed over.
• Buying so-called sharia cover from an unauthorised intermediary, with no way of identifying the operator or its committee of scholars.
• Ignoring the surplus clause, when in Malaysia the operator may keep up to half of it depending on the policy.

Owners and takaful: practical answers