Motor takaful in banks’ ijarah based financing : the issue of undercoverage

Abstract EN

This narrative study shows how and why a vehicle leased under ij¯arah should be covered at its market value with a tak¯aful company, otherwise compensation would only be on partial or proportionate basis if a defined loss occurs.

An Islamic bank when gives a vehicle on ij¯arah basis, it takes comprehensive tak¯aful coverage for mitigation of the physical aspects of risk like accidental damage, third party loss, theft and snatching.

While renewing the coverage on yearly basis, bank covers the vehicle on book value which is always less than their market value.

Therefore, when a loss occurs, the tak¯aful company provides proportionate compensation which is always far less than actual loss.