Life insurance is an important financial agreement that provides for the financial security of you and your family in the event of your death or disability.
It is an important component of a comprehensive financial plan and can provide security for your ones in case of death or disability.
Unfortunately, many Muslims are uncertain as to whether life insurance is allowed by Islamic law due to certain aspects of the agreement that may be seen as against Islamic principles.
If you’re confused about this issue, you’re on the right track.
In this article, we’ll clearly answer is life insurance haram or halal in Islam with arguments from Islamic scholars and evidence.
Is Life Insurance Haram In Islam?
Yes, Life insurance is Haram in Islam, as the contract and how it operates is (in general) contrary to Islamic principles.
To understand why, it’s important to look at the basic principle of life insurance.
In its simplest form, Life insurance is a contract between two parties in which an insurance company (or other third parties) pays a sum of money to the beneficiary or insured party if they die before their expected life expectancy.
The issue with this is if you’ve paid only half or even full of what was agreed upon, the other party will still receive more in the event of your death.
Here, the catch is how an insurance company gives you more money than what you have paid in return. The answer is their investment.
The insurance company will invest the premiums you pay in a haram business like gambling or put in a bank for interest income.
This is one of the ways they make a profit from your money, and it is in direct contradiction with Islamic principles.
Therefore, most Islamic scholars have ruled that life insurance is haram, as it involves the use of haram funds or interest (Riba).
In addition, some other factors also make life insurance or, say, health insurance haram in Islam. You can read it below.
If you do compound interest, you can also read is compound interest haram.
Why Is Life Insurance Haram?
As you can see, life insurance is considered haram in Islam due to the fact that it involves participation or benefiting from haram sources of income.
In addition to using haram funds or interest, some Islamic scholars also consider life insurance to be haram for many other reasons.
First, you’re betting on your life with the insurance company. This is known as “Gharar,” which is a form of gambling or speculation and is prohibited in Islam.
Second, having an insurance policy will reduce your faith in Allah and make you rely on insurance companies instead.
Third, the money you get from Life insurance policies is not fixed and depends on the circumstances of your death. This again puts you in a situation where you depend on luck or chance, which is haram.
Fourth, the chances of money receiving with interest are much higher in Life insurance than in any other investment.
Fifth, the insurance company doesn’t show where they are investing your money, making it difficult to ensure that your money is not being used for haram investments or activities.
These are the main reasons why life insurance is considered haram in Islam.
You might also like reading is it haram to buy a car on finance.
As you can see, Life insurance is haram in Islam due to the fact that it involves participation or benefiting from haram sources of income.
But if you still want to secure your family’s future without getting into something haram, other options are available.
Takaful (Islamic Insurance)
One of the best options for getting insurance coverage is Takaful. The concept of takaful was derived from the Islamic principle of “Tabarru,” which means “Contribution.”
In Takaful, the policyholder contributes money and pools it together to help each other in case of any unexpected financial losses. It is more like mutual funds compared to conventional insurance.
The fund collected by Takaful is invested in Halal investments like Islamic Bonds or Sukuk and other non-interest-based activities.
The principle of mutual help, risk sharing, and the complete avoidance of interest make Takaful a much more viable and halal insurance option.
However, some scholars consider Takaful to be avoided, as you’re still betting on your life. If you want life insurance anyhow, Takaful is still a better option than conventional life insurance.
Q. Is life insurance halal or haram in Islam?
A. Life insurance is considered haram in Islam due to its involvement with interest-bearing activities and gambling.
Q. Is selling life insurance haram?
A. Yes, selling life insurance is also haram in Islam, as you’re promoting an activity that is prohibited in Islamic teachings.
Q. Are Muslims allowed to buy life insurance?
A. No, buying life insurance is prohibited in Islam as it involves the use of haram funds or interest (Riba). Still, if Muslims wish to have insurance coverage, they can go for Takaful (Islamic Insurance).
Q. Why insurance is prohibited in Shariah?
A. Insurance is prohibited in Shariah because it involves betting on your life, which is a form of gambling or speculation. In addition, it involves the use of haram funds or interest and reduces faith in Allah, making it haram.
Life insurance is considered haram in Islam because of its involvement with interest-based activities and gambling. Hence, Muslims should avoid buying life insurance policies as it is a form of Riba.
However, if Muslims still wish to have insurance coverage for their family’s future, they can go for Takaful (Islamic Insurance), as it involves risk sharing and complete avoidance of interest. In addition, the funds are invested in Halal investments.
I hope your query is life insurance haram in Islam is cleared and you better understand the situation.
May Allah give us a clear understanding and help us make decisions that are in accordance with Islamic teachings. Ameen!