It’s Finally Here: The First Takaful Product in a Decade

Disclaimer:

1. This post is not intended as financial advice. Please consult with a qualified financial advisor to determine the best course of action for your individual needs.

2. This post does not intend to promote any financial product or service, and the writer is not attached to any financial institutions at the time of writing.

3. Any opinions shared in this article are solely those of the writer. No offence is intended, and discussions on the topics covered are welcome.

Context

After over a decade of waiting, Singapore's Muslim community finally has access to a new Takaful product for financial planning.

Let's explore the significance of this milestone.

Before the launch of the Invest Future plan by Etiqa/Maybank, Singapore had not seen any Takaful products for financial planning in over a decade (excluding the travel and general insurance offerings by ST&T International and UOI).

Takaful is a type of Islamic insurance based on mutual cooperation and shared responsibility. The absence of Takaful options left a gap in the market for Muslims in Singapore seeking Shariah-compliant financial solutions.

How Have We Been Doing Financial Planning in Singapore?

Since HSBC pulled out of Takaful operations in Singapore in 2012, many Muslims have had to rely on conventional financial products for their financial planning needs.

Some turned to ‘Islamic’ financial advisors for guidance on navigating conventional products while trying to adhere to Shariah principles. Others focused on savings and investments that avoided interest (Riba) and excessive uncertainty (Gharar), such as certain unit trusts or real estate investments.

The introduction of the Invest Future plan by Etiqa/Maybank is a significant milestone, reintroducing Takaful to Singapore. This new product caters to the growing demand for ethical and Shariah-compliant financial services, providing an option for wealth preservation and investment within an Islamic framework.

It is worth noting that in recent years, institutions like Prudential (PRULink Islamic Global Equity Index Fund) and AIA (AIA Shariah Global Diversified Fund) have contributed in the Shariah-compliant unit trust space in Singapore.

These efforts have helped develop the Islamic finance industry, ultimately benefiting the Muslim community.

What is the Ruling on Buying Insurance in Singapore?

The Islamic Religious Council of Singapore (MUIS) has provided guidance on the use of insurance. While global scholars differ on its permissibility (with the prominent view being impermissible), MUIS allows insurance under certain conditions.

In a 2012 fatwa, MUIS permitted revocable nominations for insurance policies, ensuring benefits can be distributed according to Islamic principles.

They encourage Muslims to choose Takaful products whenever possible but recognise that conventional insurance may be used when necessary, especially in the absence of Takaful options.

MUIS advises individuals to choose schemes that best fulfil Shariah requirements based on the views they find most convincing.

“The Fatwa Committee opines that each individual Muslim who intends to participate in any insurance scheme is responsible in choosing a scheme which best fulfills the requirements of the Shariah, based on the views of the Muslim jurists that he/she is most convinced with.”

Invest Future: What Is the Product About?

Invest Future is an investment-linked policy (ILP) with features similar to other ILPs, such as life and TPD coverage, bonuses, and more. However, it’s Shariah-compliant features make it unique:

• Shariah-Compliant and Values-Based:

This Takaful product follows Islamic financial principles and is approved by the Financial Shariah Advisory and Consultancy (FSAC) of Pergas Singapore. It operates on Wakalah (agency) and Tabarru’ (donation) principles, where policyholders let Etiqa manage and invest their premiums while contributing to a mutual support fund.

• Shariah-Compliant Investment Options and Protection:

The plan provides access to Shariah-compliant ILP sub-funds, managed by reputable asset managers, with a minimum monthly premium of S$200.

• Ease of Access and Legacy Planning:

Policyholders can name beneficiaries or pledge their benefits as gifts or waqf (charitable endowment), ensuring their values and legacy continue. While conventional ILPs also allow nominations, highlighting this feature in a Shariah-compliant product is a step toward holistic wealth management.

What’s the Difference From Conventional ILPs?

The key difference lies in the policy contract. Invest Future is 100% Shariah-compliant, adhering to Islamic principles in every clause of the policy contract. Its risk-sharing model (Wakalah and Tabarru’) differs with conventional ILPs, where the insurer shoulders all risks and rewards.

It’s important to note that simply accessing Shariah-compliant funds through the conventional ILP does not make the whole policy Shariah-compliant—every aspect of the policy must align with Shariah principles.

Will There Be Changes to the Ruling on Conventional ILPs?

With a Shariah-compliant alternative now available, I humbly believe that consumers considering a new ILP for their investment portfolio should prioritise the Takaful option.

While some may prefer conventional ILPs for features like better-performing funds or asset managers, these reasons are secondary. The reality is that conventional ILP contracts are not Shariah-compliant.

Previously, the absence of halal alternatives justified their use, but now, with a halal option available, this justification no longer applies. (Note: The discussion here is strictly about ILPs and does not extend to other types of insurance policies. For those, the same rulings still apply.)

For those who already own ILPs, surrendering prematurely may incur losses due to surrender charges. Therefore, this advice primarily applies to those considering new ILP policies.

Alternatively, there is also the option where individuals can invest directly in Shariah-compliant funds without purchasing an ILP. (Note: These are personal opinions, not financial advice.)

What’s Next?

• For consumers:

The Muslim community in Singapore has long awaited an Islamic financial product. Now that we have this option, it’s time to support the initiative. If you’re planning to add an ILP to your portfolio, this is your chance to choose a Shariah-compliant solution.

While some may argue about features or fund performance, remember that prioritising Shariah compliance is key. Maybank/Etiqa has worked hard to deliver a competitive product, and it may be a while before other options become available.

• For advisors:

Muslim financial advisors with access to Etiqa products should prioritise Invest Future when recommending ILPs. For those without access, it’s ethical to inform prospects about this product’s availability, especially when clients emphasise Shariah compliance.

• For competitors:

Etiqa has proven that producing a Takaful product in Singapore is possible. This achievement challenges other institutions to step up and offer similar products, fostering healthy competition and providing more choices for consumers.

• For Etiqa/Maybank:

Invest Future is just the beginning. We’re excited to see what other Islamic financial products Maybank and Etiqa will bring to the market, further advancing Shariah-compliant wealth management in Singapore.

Conclusion

We hope that one day Singapore will reach a stage where a wide range of Shariah-compliant financial tools are available across various financial institutions.

This would enable the Muslim community to build a truly holistic wealth management portfolio.

May these products not only meet but exceed the standards and performance of conventional offerings. Ameen!