Is Life Insurance Halal in Islam?

The answer is no, life insurance is not halal in Islamic religion. Therefore, it’s considered haram.

Life assurance, on the other hand, is considered halal.

But why is life insurance haram and life assurance halal? And what options are available?

Keep reading this article to find out why life insurance isn’t halal…

Life Insurance in Islam

As discussed above, life insurance is considered to be haram.

Anything considered to be haram is forbidden or prohibited by Islamic law.

To understand why life insurance is haram keep reading to discover how life insurance works…

How Does Life Insurance Work?

Life insurance is a way of protecting your family financially should the worst happen and you were to pass away.

You choose a sum assured (pay out amount), how long you’d like to be covered for and a policy type.

Typically, your policy will either last for a specific period of time (term life insurance) or it will last for life (whole of life insurance).

Term Life Insurance

Term life insurance comes with level or decreasing terms. You’ll be covered for a specific period of time and you’ll pay a monthly premium for your cover.

A pay out will only be received by your loved ones if you pass away during the term. If you outlive your policy, cover will expire and you’ll need to find new cover to last for the remainder of your life.

Whole of Life Insurance

Whole of life insurance is a form of life assurance as a pay out to your loved ones is guaranteed. Your cover will last for life and a pay out is made when you pass away.

You’ll need to pay premiums for the rest of your life in order to keep your cover in place.

As a result, it can become a costly option if you take out a policy at a young age.

If you pass away during the length of your policy, a pay out will be made to your loved ones. This pay out can be used to:

• Pay off the remaining mortgage balance
• Cover daily family living costs
• Pay for your funeral
• Be left as an inheritance

UK broker Reassured have written this comprehensive guide on how life insurance works.

Why is Life Insurance Haram in Islam?

Life insurance is prohibited in Islamic religion for a few reasons.

Firstly, in Islamic religion, Allah is responsible for life, death and providing for his people.

By taking out a life insurance policy, many believe this is interfering with Allah.

A life insurance policy may also be considered to be haram under the grounds of:

• Ghara – uncertainty or deception
• Maysir – gambling
• Riba – usury or unjust

A life insurance policy is considered ‘uncertain’ in Islamic faith as a pay out isn’t guaranteed.

With term life insurance a pay out is only made to your loved ones if you pass away during the term. As it can’t be predicted whether this will happen or not, there’s a level of uncertainty.

Maysir (gambling) arises as a result of this uncertainty.

In the case of term life insurance, Riba occurs in two instances:

• If someone takes out a life insurance policy, only pays a few months premiums and passes away and receives a full sum assured – this is unfair to the life insurance company as they have received less than they are giving out.

• Similarly, if someone takes out a life insurance policy, pays premiums until their policy ends and receives no pay out – this is unfair as the life insurance company has received more than they are giving out.

These elements mean that a traditional term life insurance policy doesn’t conform to the rules of Sharia (Islamic laws that govern day-to-day life) and is why life insurance is haram.

Is Life Assurance Halal?

Unlike with life insurance, a pay out from life assurance is guaranteed when you pass away (not if you pass away).

Typically, in the UK life assurance comes in the form of whole of life insurance.

With this policy type, you’re covered for the rest of your life and a pay out is made upon your passing.

Due to this, life assurance is accepted within Islamic religion as there is no uncertainty as to whether your loved ones will receive a pay out.

This means taking out life assurance, such as whole of life insurance, is halal.

What’s the Difference between Life Insurance and Life Assurance?

As discussed above, the main difference between life insurance and life assurance is that a pay out is guaranteed with life assurance.

Life insurance will last for a specified period of time (the term), whereas life assurance lasts for life and therefore, ensures a pay out is made to your loved ones upon your passing.

Islamic Insurance

If you’re looking for life cover that’s halal, life assurance (such as whole of life cover) will be your best option.

There’s the option of Islamic life insurance in the form of a takaful.

The concept of insurance isn’t considered haram with a takaful. This is because a takaful is based on mutuality, co-operation and shared responsibility and doesn’t include prohibited elements such as uncertainty and gambling.

Therefore, a takaful isn’t breaching the rules of Sharia (the code of day-to-day living in Islamic religion).

A takaful provides long-term savings and protection.

Instead of paying premiums, members will all contribute into a shared pool or mutual fund to help each other in the event of a tragedy.