Is Life Insurance haram in Islam?
Many people ask me if Life insurance halal in our pious religion Islam. The answer is no, it is considered haraam. On the other hand, life assurance is considered necessary and halal.
But why is that, insurance and assurance sound almost similar. Then why one is considered haraam, whereas another was is halaal and necessity?
Life Insurance in Islamic religion:
We all know, life insurance is a way of protecting our family financially estimating the worse. Here worse means, if we die. We choose a sum assured, which is payout amount, how long the coverage and a type of policy.
Usually, the policy lasts for a specific period of time, which is called term life insurance. Or it will last for a lifetime, this is called the whole of life insurance.
Term Life Insurance:
This comes with decreasing terms. One will be covered for a specific time, and one has to pay a monthly premium for it. A payout will only be received by your dear ones if you die during the term. If you outlive your policy, the cover will expire. You will get an amount. But you have to find another policy for the rest of your life.
The whole of Life Insurance:
The whole of life insurance is a form of life assurance in which a payment to your family is guaranteed. Your cover will last for life. You’ll need to pay premiums for the rest of your life in order to keep your cover in place. Naturally, it is a costly affair if you start it at a young age.
If you die during the length of your policy, a payment from the company will be made to your family. They can live without worries for a long time.
Why is it Haraam in Islam?
Firstly, you cannot control your death. Almighty Allah knows the best. He is responsible for life, death and providing for our Ummah. By investing in a life insurance policy, it is actually interfering with Allah’s plans.
Secondly, insurance policy on life is considered ‘uncertain’ as payment is not guaranteed.
With term insurance, payment is only made to your family if you pass away during the term. Hence, there is uncertainty or Ghara. Maysir or gambling arises from this.
Thirdly, term life insurance generates riba or usury in two instances-
1. If you take out a life insurance policy, pay only a few months premium and die. Your family will receive a full sum assured. This is unfair to the company as they have received less than they are paying.
2. If you pay premiums till the end, yet receive no payment. This is unfair as the company has received more than they are giving out.
Therefore, it is evident that the term life insurance policy does not conform with Shariah. This is why this kind of insurance is considered.
What about Life Assurance?
A payout from life assurance is guaranteed when you pass away. With this policy type, you’re covered for the rest of your life and a payout is made upon your death.
Therefore, life assurance is accepted within Islam as there is no uncertainty. Hence, the problems of ghara, maysir or riba are not in it. That is why it is considered halal.
Insurance policy on life will last for a specified period of the term, whereas life assurance lasts for life. Hence, it ensures payment is made to your family upon your passing.