What Is Hibah? Discovering the Benefits of Hibah Takaful

In Malaysia, prioritising the security of your family after your passing is crucial due to the importance of faith in financial matters. Although wills are commonly used in estate planning, Islamic inheritance law presents a distinct option in the form of Hibah. The idea of giving voluntarily, combined with Takaful, offers an appealing and unique choice for individuals looking for Shariah-compliant financial protection.

In this article, we will discuss the concept of Hibah, understand its meaning, and learn how Hibah Takaful helps protect your family's future. We will also look at it in comparison to standard wills, highlight its benefits, and guide you in choosing wisely for your family's financial protection.

What is Hibah?
Derived from the Arabic word 'to give', Hibah translates to a gift in English. Islamic law (Shariah) refers to the voluntary gifting of a possession or asset during the giver's lifetime without expecting anything in return. Once the gift is complete, the recipient becomes the full and legal owner of the gift item.

What is Hibah Takaful?
Takaful is an Islamic insurance policy based on mutual cooperation. In English, Takaful means “guaranteeing one another”. In Takaful, you contribute a certain amount as Tabarru (voluntary contribution). These amounts are pooled with other participants in the plan to provide mutual assistance.

When you enter a Takaful plan as the person covered, you can nominate someone to receive the sum covered if you pass away as an executor or as a beneficiary under the ‘Hibah’ option. If you nominate a beneficiary under Conditional Hibah, the Takaful pool disburses a predetermined sum to them, fulfilling the Conditional Hibah. This ensures that your loved ones receive financial support swiftly and efficiently, in accordance with Islamic principles. In short, Hibah Takaful refers to transferring the Takaful sum covered to the nominated beneficiary in the event of the death of the person covered.

Hibah Takaful vs. Will: Key Differences
While both Hibah Takaful and will (or wasiat under Shariah law) serve the purpose of distributing assets after death, they differ significantly in their approach and execution. Here's a breakdown of the key distinctions:

Ownership/Asset

Will: The assets are owned by the testator. The testator has full control over their assets during their lifetime, and upon their death, the assets are distributed according to the instructions outlined in the will.
Hibah Takaful: The ownership of the Hibah asset (Takaful payout or sum covered) does not rest with the testator, but rather with the Takaful pool. The participants contribute to the Takaful pool, and in the event of a covered loss or claim, the payout is made from the pool to the beneficiary.

Distribution Process

Will: Assets passed down in a will go through probate, a legal procedure that confirms the will's validity and supervises the distribution of assets as outlined in the document. This process may take a lot of time and may involve complicated steps, potentially resulting in high costs.
Hibah Takaful: Hibah Takaful bypasses probate entirely. The predetermined beneficiary and clear communication with the Takaful operator streamline the claim process, ensuring that your beneficiaries receive the designated payout swiftly and with minimal cost.

Control and Certainty

Will: A will offers more flexibility as it can be modified or revoked during the testator's lifetime. However, this flexibility can also create uncertainty, as wills can be contested by heirs, potentially leading to family disputes and delays in asset distribution.
Hibah Takaful: A completed Hibah contract is a legally binding agreement that establishes a clear beneficiary and outlines the payout process within the Takaful agreement. In Malaysia, Hibah under Takaful is protected by the Islamic Financial Services Act (IFSA 2023), and while it is revocable or can be changed during the lifetime of the contract holder, it cannot be contested by heirs. Hibah (Takaful payout) will neither form part of the estate of the deceased (person covered) nor be subject to the person covered’s debt. This certainty minimises the risk of disputes and ensures your wishes are carried out as intended, further reducing the potential for complications.

Limitation

Will: In Muslim (wasiat) rules, the total asset distributable should not be more than 1/3 of the total assets of the deceased. The recipient of wasiat should be other than their heirs, as their heirs will be subject to Faraid (Muslim law of administration) procedures.
Hibah Takaful: There is no limitation or the recipient or on the total asset depending on the plan's benefits.

Benefits of Hibah Takaful
Hibah Takaful combines tradition and innovation in financial planning. Understanding what Hibah is and its English meaning reveals the significance of Hibah Takaful insurance. It provides both a financial safety net and a way to honour commitments with foresight.

Flexibility and Control

In contrast to conventional wills, which become valid only after you die, Hibah, a fundamental idea in Hibah Takaful, enables you to allocate a specified amount (the Takaful payout) to selected recipients while you are still alive. This guarantees that your desires are executed quickly and your beneficiaries get the financial assistance they require without the probate-related delays and complications. Hibah Takaful insurance plans usually give you the option to change your Hibah amount percentage and beneficiary as needed, offering flexibility in your financial planning approach while following plan terms.

Reduced Risk of Disputes

A completed Conditional Hibah arrangement is legally binding and protected by the Islamic Financial Services Act (IFSA 2023). This clarity minimises the risk of disagreements over inheritance among family members, helping to preserve harmony and goodwill within the family. Hibah Takaful builds upon this by ensuring transparency – the designated beneficiary is already identified, and the Takaful operator is aware of the arrangement, minimising the potential for disputes over the rightful recipient of the payout.

Fulfilling Religious Obligations

In Islam, supporting loved ones and giving generously are highly encouraged. Hibah, by its very nature, allows you to fulfil these obligations while you're still alive, bringing the satisfaction of knowing your loved ones are taken care of. Hibah Takaful further strengthens this by adhering to Shariah principles and ensuring your financial planning aligns with your religious beliefs.

Peace of Mind and Efficiency

Knowing your loved ones will have access to a designated sum upon your passing can provide immense peace of mind. Hibah Takaful, by bypassing probate, ensures this happens swiftly and efficiently. The pre-determined beneficiary and clear communication with the Takaful operator streamline the claim process, so your loved ones receive the financial support they need promptly during a challenging time.

Reduced Costs

Probate processes can incur significant fees, including court fees and lawyer fees. Hibah Takaful, by eliminating the need for probate, typically involves lower administrative costs. This allows a larger portion of your contributions to go directly toward the eventual payout for your beneficiaries.

Certainty and Security

After the Conditional Hibah nomination is finalised, the recipient is entitled to receive the Takaful payment without any dispute. This assurance ensures financial stability for your family once you are no longer there. Hibah Takaful enhances this by providing the extra protection and risk-sharing principles that are fundamental to Takaful. Your contributions are combined with those of other participants in the plan, forming a safety cushion for unexpected situations.

Requirements and Conditions in the Arrangement of Hibah Takaful
The specific requirements for a Hibah Takaful (conditional Hibah) may vary depending on the jurisdiction and the chosen Takaful operator. However, some general principles apply:

Donor Capacity: The donor must be of sound mind.
Acceptance by Beneficiary: The beneficiary does not need to be informed upfront for a Hibah nomination, as it is revocable and subject to changes during the donor's lifetime. However, it is encouraged to inform the beneficiary to facilitate the claim process. Hibah Takaful is completed after the beneficiary takes possession of the Hibah asset (Takaful payout).
Hibah Asset: The gifted asset must be recognised by Shariah, valuable, identifiable, and deliverable (Takaful payout).
Effect of Hibah: The transfer of ownership to the recipient shall take effect upon fulfilment of the condition stipulated in the Hibah arrangement (conditional Hibah), where in Takaful, the ownership of Hibah must be transferred to the beneficiary upon the demise of the donor.
Witness Testimony: In some cases, witness signatures may be required to validate the Hibah Takaful.

Consulting both a Shariah advisor and your selected Takaful operator is essential to ensure that the Hibah agreement complies with all Shariah and legal standards.

Tips When Planning for Your Future with Hibah Takaful
Embarking on Hibah Takaful requires thoughtful planning and informed decisions. Let’s explore some key considerations on how you can secure your legacy and provide for your loved ones with confidence and wisdom.

Assess Your Needs and Goals

Begin by understanding your financial requirements. Determine the amount you wish to leave for your beneficiary. Whether it’s for family support, education, or other purposes, having a clear goal will help you choose an appropriate Hibah Takaful insurance plan.

Select a Reputable Takaful Operator

Research different Takaful operators. Look into their track record, financial stability, and reputation. A reliable operator ensures that your contributions are managed effectively and that the promised benefits will be delivered when needed.

Get Expert Assistance

Consult with a certified financial advisor for guidance. They can assist you in the process, provide explanations about the available Hibah Takaful insurance plans, and check that the plan you choose matches your financial goals. Their knowledge will assist you in making knowledgeable choices.

Get Started on Your Hibah Takaful Plan
Hibah Takaful offers a compelling and Shariah-compliant approach to securing the financial future of your loved ones in Malaysia. It combines the flexibility and certainty of Hibah with the security and risk-sharing principles of Takaful. With Conditional Hibah, you can ensure your beneficiaries receive the financial support they need promptly and efficiently while adhering to Islamic principles.

Sun Life Malaysia, a trusted provider of Islamic financial solutions, is dedicated to guiding you toward a secure financial future. In collaboration with Sinar Harian, we recently hosted an enlightening podcast featuring a thought-provoking discussion on Hibah, Faraid, and Wasiat. You can access this insightful podcast here.

For more information on Sun Life Malaysia's wide range of insurance and Takaful products to improve your financial path, learn more about our Hibah Takaful plans today.

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What Is Hibah? Discovering the Benefits of Hibah Takaful