A mathematical modelling in determining the portion of Tabarru’ fund for sharia life insurance based on wakalah scheme

Abstract

The development of sharia products in the Muslim country is growing rapidly, especially in Indonesia, where the majority of the population are Muslim. One of the developing sharia products in Indonesia is sharia life insurance. Sharia life insurance is a sharia insurance product to anticipate the risks contingent with life that might happen to its policyholder. In this research, we consider sharia life insurance with a Wakalah bin Ujrah contract or Tijarah contract. In this contract, the premium from the participants or policyholders would be divided into three funds. There are wakalah fees, investment funds, and Tabarru’ funds. Tabarru’ funds are the funds that will be used to pay the benefit if a contingent life event happens. In this research, we are interested in optimizing the portion of Tabarru funds based on the premium paid by the policyholders for the purpose that the insurance company can meet its future liabilities regarding death benefit payment. We build a model by using Equivalence Principal (EP) assumption and perform simulations using the data of Indonesia Mortality Table IV 2019. The results show that the portion of Tabarru’ funds in premiums increases with the increasing age of policyholders and years of coverage.