Investment Income Sharing
What Is Investment Income Sharing?
Investment income sharing alludes to profits made through the investment activities of a mutual insurance arrangement distributed to plan participants.
Investment income sharing is generally commonly associated with insurance services that follow Islamic financial rules, explicitly takaful. In Islamic finance, takaful alludes to a mutual guarantee.
The term is derived from the word kafala, which alludes to a sort of sponsorship system. It was utilized as a method for monitoring traveler workers and construction employees in a few Middle East countries. In any case, the practice has gone under analysis in recent years by human rights organizations that item to the double-dealing of workers, which has been regularly reported.
How Investment Income Sharing Works
The traditional approach to takaful would include a group of individuals who meet up to accommodate a specific financial need, like insurance. Participants add to a common fund, and every patron is repaid from losses.
The approach varies from conventional insurance in that shareholders don't profit from insurance operations. Risk is shared across every takaful member, and any profit must be consistent with Sharia law. In this situation, no usury is permitted, so any interest rate must be fair and reasonable.
Investment income sharing permits any surplus to be shared between participants in the mutual guarantee program, however regulations require a level of separation between parties. The takaful operator can share in both the money acquired from underwriting activities and the income earned from any investments made with insurance premiums.
Participants in this type of insurance contribute funds to a general fund. Any profit coming from investments is piped once again into the general fund, minus the cost of operating the fund. Then, any leftover surplus is split between the company and the participants.
Takaful arrangement can include a general approach or can have a family center.
Special Considerations
Those interested in participating in investment income sharing plans can browse several unique potential arrangements. These designs vary as per how participants and shareholders in a company share a surplus from investment activities. In certain arrangements, income remains exclusively with plan participants. In others, income is piped into a company with shareholders. This income is adjusted for corporate management expenses, with the ultimate profit or loss split between shareholders.
General types of takaful incorporate non-life perils, like property, marine, and automobile. Family takaful can comprise of life insurance policies, like term and whole life.
Features
- Types of takaful incorporate non-life perils, like property, marine, and automobile insurance.
- There are different income-sharing plans in several various potential arrangements.
- Family takaful can comprise of life insurance policies, like term and whole life.
- Profits made through the investment activities of a mutual insurance arrangement distributed to plan participants are known as investment income sharing.
- Takaful alludes to a mutual guarantee and is utilized in Islamic finance.
- In certain arrangements, income remains exclusively with plan participants. Different plans direct any payment back into the company.
