Seek help to select Takaful

Q: Is there such a thing as Islamic vehicle insurance and what are the basic issues from a consumer's standpoint?

A: One of the fascinating elements of the Takaful financial product market - and one of the reasons why it is among the fastest-growing areas in the global financial sector - is the extent to which products are being made available for every element of a person's life.

Takaful - insurance that is compliant with Islamic beliefs and based on the concept of collective insurance - is currently estimated to be a $2.3 billion market, with the Middle East region accounting for 46 per cent of total sales, according to the Bahrain Insurance Association.

With such strong demand, it's unsurprising that financial services companies are working hard to create new products that meet the needs of people in the region.

Put simply, an Islamic vehicle insurance offers cover on a cooperative basis. The price you pay for the policy is the cost of membership of a cooperative agreement that will provide you with support in the event of an accident.

If your car is damaged, the cooperative will provide you with the money for repairs - your contribution will support other members if they face a similar issue.

This is different from standard insurance, where you sign an agreement with a third party, and price of the premium is set at a level to cover the overall risk.

Sharia compliance

In terms of choosing the product, it's important to first ensure that it is fully Sharia-compliant. Often the product will be stamped and regulated by a supervisory body to ensure that is the case.

You can also ask about the advisory council that has helped to shape the product, if you need reassurance.

Beyond that, the questions you should ask around the insurance policy from a consumer perspective are very similar to the ones you should ask about a standard policy. It's an interesting phenom-enon that more consumers are being drawn to Islamic financial products because of ethical reasons, but also because they sometimes offer better protection than standard policies.

You need to understand what exclusions exist within the policy, whether the agreement functions as comprehensive cover (providing support in the event of accident or theft, as well as covering damage to third parties) or third party cover, which will only provide support to cover other people or vehicles.

In terms of your own needs, you should ask whether the policy limits you to a certain mileage and whether it covers you for travel outside of the UAE, if you drive regularly through to Oman, for example.

Cost of policy

You then also need to look at the cost of the policy. Depending on your age, the length of time you've spent driving and the sort of car you drive, some companies may make you pay a higher price for membership of the cooperative agreement. (In standard insurance terms, this is called an "excess.")

The ongoing growth in the market provides you with the opportunity to shop around, but it's rarely the case that the cheapest policy will be the best for you.

Given the complexities of car insurance generally, and the fact that Islamic vehicle insurance is still a relatively young area, it is worth seeking the help of a professional insurance advisor, to help understand the extent to which you're covered.

- The writer is director at Nexus, a leading regional financial adviser. The opinions expressed above are the writer's and don't necessarily represent the views of Gulf News.

Please send your questions to: advice@gulfnews.com.