Personal Finance

Life Insurance: is it haram or halal?

Image of life insurance text

In my previous article “Is insurance haram or halal?”, I discussed some of the main arguments for why insurance should be considered permissible from a Shari’ perspective. However, at the end of the article I promised a follow-up article on life insurance as I noted that it is a different beast to your standard insurance that protects against loss, and as such requires further research.

Well here it is.

In brief, there are two kinds of life insurance. One is best understood as simply another of instance of the standard protective insurance, while the other is best characterised as an investment vehicle. The former is consequently permissible (according to all the same arguments made in the previous article), while the latter is only permissible if the underlying investments are permissible.

Types of life insurance

There are many permutations and variable types of life policies, but fundamentally they all fall into one of the two areas below.

  1. Term insurance

Term insurance is a protective insurance that pays out to your dependents in case you die within a certain period. So, let’s say you are 25 and you purchase a policy costing £10 a month which promises to pay out your dependents £100,000 in case you die before the age of 50. Now what happens is:

a) Either you die before the age of 50 and your family gets £100,000; or

b) You survive past 50 and the policy simply ends. The insurance company simply keeps the £3000 you’ve paid in until then – just like the insurer keeps your car insurance premium each year.

  1. Whole life insurance

Whole life insurance is a mixture of protective insurance and an investment vehicle. Again, let’s say you take out a policy at the age of 25 for £100 a month and it is set to pay out a minimum of £35,000 at the age of 50. If you die before the age of 50 then it pays out £35,000 to your dependents. But you would hope that you don’t die and the underlying investments do well and you get paid out £50,000+ by the time you’re 50.

The Islamic perspective: term life insurance

This kind of insurance is very much equivalent to all the other kinds of protective insurance that were discussed in the previous article. The same arguments apply, namely:

  1. The kind of gharar that is being forbidden in the ahadith is not the kind of gharar involved in modern insurance;
  2. The many positives of insurance outweigh the negatives; and
  3. if we accept takaful as Shariah-compliant, then we must accept conventional insurance as Shariah-compliant as there is little substantive difference between the two.

There may however be a few unique objections to life insurance in particular which cannot be levelled against other kinds of insurance, so let’s test if they’re compelling.

Arguments against life insurance in particular

The first one is that, unlike other kinds of insurance, life insurance seeks to insure against loss of life and the sustenance of one’s family after one’s death.

The nusus (scriptures) say:

When Ibrahim said: My Lord is He who gives life and causes to die [2:258]

And He is the one who gave you life; then He causes you to die and then will [again] give you life. [22:66]

There is not a single moving creature on the earth but Allah is responsible for providing its sustenance. [6:11]

Do not kill your children for fear of poverty. We will give sustenance to all of you. To kill them is certainly a great sin. [17:31]

“Umar said, “I heard the Messenger of Allah, may Allah bless him and grant him peace, say, ‘If you were to rely on Allah as He should be relied on, He would provide for you as He provides for the birds. They go out early in the morning hungry and return in the evening full.’” [Tirmidhi]

The argument goes that by taking out life insurance one is encroaching on the domain of Allah. Allah has specifically mentioned life and sustenance as two categories we shouldn’t worry about – that is in the hands of Allah.

But this argument is so weak I fear I’ve drafted it as a strawman. There are two obvious responses to it: (1) Allah says he is in charge of life and death and providing sustenance, but he doesn’t want us all to kick back and chill out, or take no precautions whatsoever. The nusus also say:

“do not throw [yourselves] with your [own] hands into destruction…” [2:195]

Anas ibn Malik reported: A man from the Ansar came to the Prophet, peace and blessings be upon him, and begged from him. The Prophet said, “Have you nothing in your house?” The man said, “Yes, a piece of cloth, a part of which we wear and a part of which we spread on the ground, and a wooden bowl from which we drink water.” The Prophet said, “Bring them to me.” The man brought these articles to him and the Prophet took them in his hands and he said, “Who will buy these?” Someone said, “I will buy them for one coin.” The Prophet said twice or thrice, “Who will offer more than one coin?” Someone said, “I will buy them for two coins.” He sold them for two coins and the Prophet said, “Buy food with one of them and give it to your family. Buy an axe and bring it to me.” The man brought it to him. The Prophet fixed a handle on it with his own hands and he said, “Go gather firewood and sell it, and do not let me see you for a fortnight.” The man went away and gathered firewood and sold it. When he had earned ten coins, he came and bought a garment and food. The Prophet said, “This is better for you than for begging to come as a blemish on your face on the Day of Resurrection. Begging is appropriate only for three people: one in severe poverty, one in severe debt, and one who must pay a difficult compensation.” [Abu Dawud]

The Prophet also said “”It is the duty of a Muslim who has anything to bequest not to let two nights pass without writing a will about it” (Sahih al-Bukhari)”. Again, Islam teaches us to take all necessary precautions for looking after our family even after we die. In fact Islam forbids one from bequeathing more than 1/3 of the inheritance to other than the set people who are the deceased’s immediate family.

Argument (2) against this objection is that by the same token all the other kinds of protective insurance would also be impermissible as Allah is also the Shafi “Healer” and Haafiz “Protector”. So one shouldn’t take out medical insurance – in fact, by the same reasoning, one shouldn’t go to the hospital or take medicine.

Another objection to the permissibility of life insurance could be that Allah is the owner of life and death – and as such we are not Islamically permitted to trade using it. Again there are two straightforward responses: (1) in life insurance we are not buying and selling our lives, we are mitigating the risk of loss of life; and, if I’m wrong about (1), (2) Allah says in the Qur’an:

“Indeed, Allah has purchased from the believers their lives and their properties [in exchange] for that they will have Paradise.” [9:111]

Clearly we do have a degree of ownership over our lives and what we do with it. To that extent we are allowed to use our lives and bodies in the way we choose to.

I would be interested to hear further arguments from you (in the comments below) if you think I’ve missed any major objections to life insurance.

The Islamic perspective: whole life insurance

Fundamentally there is not a problem with whole life insurance – but in reality there will be for most people living in the West. This is because this type of insurance is best characterised as an investment and the permissibility of the investment depends on the underlying assets which are invested in.

In the Middle East this is not a problem if you opt to go with a takaful operator who will be restricted by their internal policies to invest only in halal assets.

In the UK however it is a bit trickier as standard insurers will almost certainly put large amounts of the policy amount into fixed-income (interest-based) products.

But all may not yet be lost. There are potentially two ways to go about dealing with this: (1) either one gets a policy where one can dictate what underlying investments the policy is invested in (and then opt for all Shariah-compliant assets; or (2) one chooses a policy where the underlying assets are largely Shariah-compliant, and then gives away as charity the portion that is not. I am not a huge fan of this latter option as whole life insurance certainly isn’t as necessary as a pension, say, can be. So one can quite easily just choose to invest in the whole range of other Shariah-compliant investment products available instead.

Conclusions

I think the above arguments are fairly clear so I won’t repeat myself here. In short, if you are considering life insurance, see if it is term insurance or whole life insurance. If term insurance, my view is that it is fine. If whole life insurance, my view is that it is also fine if you can control the investments being sharia-compliant. In practice that is likely to be difficult in the West.

What I will also do is flag up two areas that I feel like we at IFG should explore more closely in the coming months:

  1. Genuinely, what are the various long-term Shariah-compliant investment options out there. To this end we will shortly inshAllah be embarking on a series of reviews of the various companies/funds/start-ups who put themselves out as Shariah-compliant (if you want to contact us with entities we should review, please do); and
  2. Just how good is the argument of “purifying” the haram earning out from an investment and keeping the rest? Isn’t that a bit of a cop-out?

I look forward to your comments as ever!

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9 Comments. Leave new

  • The reluctance that I am having in buying insurance is that the insurance companies invest the premiums in interest based businesses which are not allowed. If there are any that strictly abide by Islamic rules of investment, please share the info on them.

    Reply
  • Life Insurance is defined as “A protection against the loss of income that would result if the insured passed away. The named beneficiary receives the proceeds and is thereby safeguarded from the financial impact of the death of the insured.”[1]

    Life Insurance is not permissible for the following three reasons:

    1. Qimaar (gambling): The Life Insurance Company might receive more than the insured monies or might not receive any amount of money. This is the same as gambling. If the insured person is afflicted with any loss or damage to insured properties worth millions, he might receive more than what he has paid for or might receive less. This is exactly how gambling works.

    2. Riba (Interest): If the Insurance Company receives premiums worth more than the insured amount, then that will be usury and interest. If there is any loss to the insured person’s property and the loss is worth much lesser than the total premiums that he has paid to the insurance company, such a person would be guilty of undertaking a usurious and interest based transaction.

    3. Gharar (Future Uncertainty): There is no certainty when the insured person will die. Therefore the insurance contract is based on an uncertain future event, i.e. death of the insured person. Rasullullah (Sallallahu Alayhi Sallam) prohibited any transaction which has the element of Gharar.

    Reply
  • Sustenance is hard especially in our countries of mixed religions.how can we be helped

    Reply
  • BASHARAT FAROOQ
    August 16, 2018 7:59 pm

    ASALAAM U ALAIKUM
    DEAR BROTHER SORRY TO SAY BUT THE TRUTH IS THAT U ARE GIVING REASONS WHICH ARE NOT CLEARING THE DOUBTS BUT WHAT THE (MAA ON 25 JUNE AT 0900 HRS.) HAD WRITTEN ABOVE IN COMMENTS IS THE NAKED TRUTH ABOUT INSURANCE. IN NO WAY INSURANCE IS HALAAL,,,,
    EVERY ASPECT OF ANY KIND OF INSURANCE IS HARAAM AND UN ISLAMIC.

    All types of insurance are Haram (prohibited). They involve Jahalah (sale with lack of knowledge), Gharar (fraudulent transaction where details about the sold item are unknown or uncertain) – both of them are not pardoned – gambling, unjustly taking people’s money, and Riba (usury/interest). There are many legal proofs that all these transactions are forbidden. Allah (Exalted be He) says:

    And eat up not one another’s property unjustly (in any illegal way e.g. stealing, robbing, deceiving, etc.) [Surat Al-Baqarah 2:188]

    And:

    Shaitân (Satan) wants only to excite enmity and hatred between you with intoxicants (alcoholic drinks) and gambling, and hinder you from the remembrance of Allâh and from As-Salât (the prayer). So, will you not then abstain? [Surat Al-Mai’dah 5:91]

    Moreover, the Prophet (peace be upon him) forbade Gharar sale [Muslim, Book on transactions, No. 1513].

    Source: Insurance

    Al-Gharar is something that involves uncertainty, risk or speculation.

    Narrated by Abu Hurayrah (may Allaah be pleased with him):

    “The Messenger of Allaah (peace and blessings of Allaah be upon him) forbade transactions determined by throwing a stone and transactions which involved some uncertainty.” (Narrated by Muslim).

    Also,

    Shaykh ‘Abd-Allaah ibn Jibreen was asked what if the commercial insurance is compulsory and cannot be avoided.

    He said:

    If insurance is compulsory and cannot be avoided, the one who is forced to buy it is excused. But if it is not compulsory then it is not permissible to buy it, so long as it is a type of commercial insurance, because it is a kind of gambling which is forbidden.

    Hope that you will try to understand.
    Rest ALLAH (S.W.T) KNOWS THE BEST

    Reply
    • jzkallah khayr for the input brother. I believe I have adequately explained my position on the points raised above. I appreciate that this is a sincerely held alternative view for you.

      Reply
    • When I take the license, I study for the test. In chapter 1, it specifically said that insurance does not cover speculative risk, a type of risk that could involve gain. What does that mean? Gambling is not covered by insurance. That means, insurance has nothing to do with gambling.

      As for Jahalah or Gharar, in order to sell life insurance in USA, you need to be licensed. It is strictly forbidden by law to solicitate the products without properly and fully licensed. With that said, the agent must be fully educated and knowledgeable about the product they are selling. Without proper education, they will not pass their license examination.

      As for Riba, let’s be honest. If we take this too literally, that interest rate is forbidden, then no Islamic people can grow their money. Owning business is forbidden because it involves using your money to gain more money (interest). Bank is forbidden too. Owning a property is forbidden because it can grow in value. There will be a lot of forbidden things and by the end of many generations, they will have nothing to pass down to their next generation because they’re all broke.

      Reply
  • Dear brothers, Assalalamualaikum wa Rahmatullah wa barakaat. As a Muslim living in Canada I am also challenged by family protection issues living in the West where we do not have an Islamic Bait ul maal to which we could contribute and which could take care of adequate family needs in the event of death or other calamities. The Insurance business is so meticulously regulated here and so scientifically and statistically operated that it leaves little or no room for speculation. The contracts , whether for term insurance or Universal Life Insurance are very clear and precise and it is a contract where both parties agree on a business partnership, meaning, the insured agrees to pay a premium at clearly defined rate for a defined length of time and the Insurer agrees to pay in the event of a calamity an agreed sum of money to the benficiary (ies). These contracts are validated by the country’s legislation, at the risk of seeing the insurance company being penalised, as a protection for the client or insured. If this is a clear well defined contract, I would honestly like to see where the element of uncertainty is, especially given that I have never heard of any default or malpractice by any insurance company. In my opinion the argument that we should leave questions of life and death and sustenance in the Hands of Allah SWT is wrongly interpreted. True it is Allah SWT who holds sovereign control of these things but why do we have to work? Why do we eat? Why do we take medicines when we are ill? Is taking medicines a certainty or a probability? Someone may take medicine but still die. Yet that person engaged in an activity that involved an element of gharar or uncertainty. He gambled his life by putting his trust in the medication.
    But he lost. Why did the Prophet saw ask that man to invest by selling his piece of cloth and use half of it for his family and invest the other half in business? When a sales person invests in buying articles with an idea of selling them and make a profit, is he sure and certain that he will actually sell his articles and make that profit? Is this speculation or no? A man is responsible for providing for his family as well as for its well being and in the absence of an Islamic Bait ul maal to which he would contribute and that would take care of his family after his death I still do not see why getting into a contract with a business that does not involve any haram like interest or gambling, would be haram as long as a clear, transparent and duly registered contract is signed between both parties. Doing businesses with non islamic entities are clearly allowed in Islam, as far as I understand as long as they do not involve any haram elements. Today Muslims are in this dilemma because the Ummah does not have a Rightly guarded Khalifah based upon the method of prophethood to take care of and regulate the affairs of the Ummah. But this may be another topic of discussion in itself. With all respect due, Jazaak Allah for reading and responding.

    Reply
  • “The argument goes that by taking out life insurance one is encroaching on the domain of Allah. Allah has specifically mentioned life and sustenance as two categories we shouldn’t worry about – that is in the hands of Allah.”

    Why is it so hard for people or Scholars to understand the above statement??? This has nothing to do with earnings, savings, finance, health or insurance.

    Yes indeed Allah swt is the creator and provider. Yes he gave us life and provided food as he did to animals too. THAT DOESNT MEAN BUYING A LIFE INSURANCE IS LIKE BUYING AN “EXTENSION TO YOUR LIFE”.

    I was talking to the owner of Auto Insurance agency. This is exactly what he told me. NO, Life is in the hands of Allah swt. We cannot buy life. He is Such an ignorant under qualified person I have ever met.

    Note: the only problem with any financial institutions is it’s “INVESTMENTS”.
    Bank accounts
    Investments
    Auto insurance
    Life insurance
    Health insurance

    Even the people who donated to Islamic institutions. Ex: A Muslim millionaire runs a Dialysis Clinics He ripoff sick people… How his money Halal. How is it a halal contribution to the Mosque.

    Why can’t these Scholars stretch the issues like a rubber band. Why can’t they simplify the answers.

    Haram: any investments based on % interest on your premium is Haram.
    But the same % if it is based on the “market value” of your investments is Halal. Cause there’s a risk of profit and loss.

    Insurance:
    Term life insurance with no cash value is Halal
    ROP. Return of premium is Halal
    IUL. Index Universal Life Insurance is Halal cause the insurance companies offer Market Value (based on the Investment) on your premiums.

    Reply
    • Yehia Salem yet
      June 21, 2019 5:48 am

      I agree with you . In the sane time I can’t say Fatwa but I advice all of us as Muslim to take care of the primary staff we need to present as Muslim as to be cooperative to have our pray in time to be honest to stop Liying to work hard as to prove to all the other people how the Islam Is great and how Muslim is good religion in simple words to present our religion in our acts and dealing with others . That’s much better than just debating in staff all of us understand that life is running very fast and very hard to judge about halal in insurance or haram as we all live in foreign countries where every one responsible for a family and no one cover you after Allah so we have to take care and protect our family.

      Reply
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