In my previous article “Is insurance haram or halal?” (video above too), 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.
- 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.
- 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.
While you’re here and thinking about planning your finances after you pass away for your loved ones, you should also think about sorting out your Islamic will. On average people misplace assets or lose through tax inefficiency up to £9700 when they die without a will. On top of that as a Muslim having a will is super important so that your inheritance is separated up the Islamic way. So if you’re a UK resident, then please do check out IFG Wills and get your Islamic will sorted within 30 minutes.
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:
- The kind of gharar that is being forbidden in the ahadith is not the kind of gharar involved in modern insurance;
- The many positives of insurance outweigh the negatives; and
- 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.
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:
- 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
- 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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