Is Life Insurance Halal in Islam?

Is Life Insurance Halal in Islam?

Anas Bouargane 24/09/2020 5
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. 

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  • Thomas Martin

    Purchase of insurance reduces uncertainty, and this is a good thing.

  • Nicholas Skelton

    Good explanation. Forget Islam and buy an insurance.

  • Irfan

    I see you (author) “holds a bachelor degree in applied economics from the University Paris Sud”. What are your credentials with regard to Islamic law? I see no references in your article, and have read the exact opposite of you say (term vs whole). If it’s simply you opinion as a lay Muslim then you should state this. As far as “ Allah is responsible for ... providing for his people”, I don’t sit at home and not go to school or work hoping that Allah will feed me. I believe we are taught to learn and to work and trust in Allah.

  • Abdullah

    Peace be upon all believers in thee Almighty.

    I disagree with the Islamic insurance so called "Takaaful"

    As in modern day Islamic finance tries to justify it by calling in assurance and using the excuse of the "Term"

    If you analyze and sincerely look deeply into it you will clearly see that the concepts are the same, the difference is just the side of the coin, but its still the same coin.

    What i mean is the exact same reasons that are used to render insurance impermissible can be applied to assurance. I.e the fact of uncertainty. It also applies in assurance as the purchaser is uncertain as to how much he is going to pay ^ so the "thaman" [purchase price] is unknown. And among the basic principles of any transaction to be permissible is, the purchase price should be known.

    Secondly : the hadeeth of the prophet[pbuh]

    "Five things when exchanged in a transaction should be done in total equality and hand in hand: gold, silver, barley, dates and money [means of payment] and the excess is considered as riba. [Al bukhari]

    I'd also mention the reason given in justification of "Islamic assurance" as mentioned above the purchaser pays for the rest of his life. The term there is not certain. He could pass away a month later, yet his family gets paid out the entire agreed price which is not fair.

    In conclusion, Islamic assurance or Takaaful however you want to call it will be permissible only in the case where the pay out equals the amount paid. So if the purchaser pays 80,000 over 20 years and passes away and his family gets paid out what he paid. Then it will conform with Islamic law as no interest or uncertainty will remain. You what you give. As money carries with in it both the qualities of items which have potential of interest.

    I stand to be correct with academic proof.

    Abdullah Osman

  • Naz

    I agree with brother Abdulla Osman

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Anas Bouargane

Business Expert

Anas is the founder of CEF Académie, a platform that provides guidance and support for those willing to study in France. He previously interned at AlphaSense. Anas holds a bachelor degree in applied economics from the University Paris Sud.


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