I would like to kindly ask your guidance on Life Insurance. Is Life Insurance
acceptable in Islam?
As for my opinion on the concept of insurance, in general, please refer to a few of my earlier responses to related questions, which may be accessed on this site.
In contrast to other forms of insurance, life insurance entails the element of investment1 with that of financial security. It is, in fact, this element of investment, which needs to be thoroughly investigated before any opinion regarding the permissibility or otherwise of a particular Life Insurance plan can be given. Generally, most of the Life Insurance plans offer a return on a predetermined basis, thereby rendering it Riba, which is clearly prohibited in Islam.
Keeping the foregoing point in mind, there is nothing in the Shari`ah that prohibits a person from benefiting from the element of security provided by Life Insurance. However, because the element of investment is likely to be based on the principle of Riba, therefore a Muslim should refrain from benefiting from it, except where it is determined to one’s satisfaction that the return on this investment is not predetermined and is, therefore, not based on Riba.
Benefiting from the element of security entailed in Life Insurance implies that the beneficiary may take the whole amount insured in case of the death of the insured, during the term of insurance. On the other hand, refraining from benefiting from the element of investment implies that in case the insured lives through the term of insurance or surrenders his insurance at any time during this term, then he may take the total accumulated amount of his premium payments made over time, but should refrain from taking any of the interest accumulated on these payments2.
I hope this helps.
March 4, 2003
- In contrast to the other forms of insurance, in most of the life insurance plans the insured amount is not only realized at the time of the occurrence of the insured incident but is also returned at the completion of the term of insurance. Thus, most of the Life Insurance plans allow for the return of the accumulated amount of payments made over the years plus an additional amount (which is generally predetermined), at the end of the term of insurance. In some insurance plans, this facility may also be provided before the completion of the term of insurance, after a specific number of premium payments. [↩]
- The total accumulated amount of premium paid over the years may, however, be adjusted in such a way that the total real value (rather than face value) of the accumulated amount may be taken back. [↩]