Life insurance is not halal in the Islamic religion, hence the answer is no. As a result, it is deemed haram.
But why is life insurance considered haram when life assurance is considered halal? And what are the alternatives?
Is it permissible to have life insurance Islam?
When it comes to Islamic life insurance policies, many scholars agree that when takaful principles are applied to insurance, it is judged lawful from an Islamic perspective.
Is insurance valid in Islam?
Key Islamic organizations have labeled health insurance policies “illegal” and warned Muslims to stay away from them, comparing the benefits to gambling. According to them, health insurance plans have turned a noble duty into a commercial activity, and hence are prohibited under Islam.
What is insurance in Islam?
Takaful insurance is distinguished from traditional insurance by the fact that premiums are treated as investments “contributions” to a mutual fund established with the goal of distributing the risk of an unfavorable event impacting a group member.
Takaful is derived from the Arabic word takaful “Kafalah” refers to a mutual help and solidarity agreement between members of a community in the event of a loss or damage to one of the members. Takaful is thus a form of mutual assurance.
- Materiality: any transaction must have a “material target” that is tied to the real economic transaction, either directly or indirectly.
- non-exploitation: any transaction must be oriented at a “material target” that is related to the real economic transaction, either directly or indirectly.
- the prohibition of any action aimed at financing “haram” or illegal acts involving alcoholic beverages, pork, pornography, or gambling.
Only ventures whose payment is based on fate sharing between investors and beneficiaries are permitted by religious law. These principles come from religious law’s condemnation of three practices:
- The Riba simply means “to add” or “to increase.” In reality, it refers to money borrowed or placed in a bank account at usurious interest rates.
Is State Life Insurance halal?
1. Is Tawakkul (complete reliance on Allah (SWT)) protected by Risk Protection (insurance)?
2. What is Takaful and how does it work?
3. How is gharar (uncertainty) removed from Takaful contracts?
4. Insurance is a type of gambling or wagering, both of which are prohibited in Islam.
5. Does a Takaful Operator strive to increase profits while depriving Policyholders of benefits?
6. Do I require insurance or a Takaful?
7. Are Takaful donations more expensive than traditional insurance premiums?
8. Will Takaful cover my automobile if it is stolen?
9. How do I file a claim with a Takaful company?
10. How are Takaful firms’ actions verified to be Shariah compliant?
11. Is Takaful done in other nations as well?
12. What is the total number of Takaful models?
13. In Pakistan, what Takaful Model is used?
14. How is the investment income of Takaful firms riba-free?
Is Takaful merely a different name for the same thing?
16. What does it mean to share surplus?
17. Is there a single Participant Takaful Fund or are there different PTFs for different types of businesses?
1: Is Tawakkul (complete reliance on Allah(SWT)) protected by Risk Protection (insurance)?
No, human acts alter Allah’s (SWT) plan for our fate. The presence or absence of insurance/Takaful has no bearing on future events. However, we must take care before entirely trusting and relying on Almighty Allah (SWT). Prophet Muhammad (PBUH) once spotted a Bedouin leaving his camel untied, according to a Hadith reported by Anas bin Malik. “Why don’t you tie down your camel,” he (PBUH) said to the Bedouin. “I put my trust in Allah (SWT),” the Bedouin said. “Tie your camel first, then put your trust in Allah (SWT),” the Prophet (PBUH) said.
It is derived from the Arabic root term ‘kafala,’ which means to ensure, to assist, and to look after each other’s needs. Mutual protection and joint assurance are referred to as takaful. Takaful is a type of insurance in which members contribute to the same fund in order to have mutual indemnity in the event of a risk or loss.
Uncertainty can never be completely eliminated, and the Takaful Contract is no exception. However, because the Takaful contract is covered by Tabarruaat, the uncertainty (gharar) is regarded to be within Shariah’s acceptable limitations. Insurance is classified as fasid because it is a contract of exchange (muawadat) that incorporates “excessive gharar.”
4: Insurance is a form of gambling or wagering, both of which are prohibited in Islam.
Pure risk and speculative risk are two types of risk or uncertainty. The prospect of loss or no loss is inherent with pure risk. For instance, property damage caused by a fire. Insurance risk protection and Takaful are both concerned with pure risks. Speculative Risk, on the other hand, involves the chance of loss, no loss, or gain. For instance, starting a new business or wagering on a horse race. Speculative risks with a prospective profit or gain are not insurable. To pay a Takaful Participant for a loss, Takaful schemes employ the indemnification principle. Takaful only insures Pure Risks, and claims are only paid out in the case of a loss to cover repairs, damage, property replacement, or a pre-determined amount.
5: Does a Takaful Operator attempt to increase profits while depriving Policyholders of benefits?
Takaful operators are cooperative or mutual organizations. Takaful’s primary purpose is communal well-being and self-sufficiency, not large profits. The excess (or profits) is shared fairly and equally between the share holders and the policyholders (i.e. the ‘Participants’) under the Takaful Mudarabah Model. The surplus is totally returned to the Participants under the Takaful Wakalah Model.
We can practice the values of Islam, especially self-purification, through a Takaful system. “Help one another in developing virtue and Taqwa (God-consciousness), but do not help one another in evil and transgression,” states Surah AI Maa’idah (V.2). According to a Hadith transmitted byAhmad and Abu Daud, whomever satisfies his brother’s intentions (needs), Allah would also fulfill his purposes. And Allah constantly rewards those who help their needy brothers. The first Constitution, drafted by Prophet Muhammed (PBUH) at Medina (622 CE), included three aspects directly connected to risk protection: social insurance for Jews, Ansar, and Christians, Article 3 on ‘wergild’ or ‘blood money,’ and provisions for Fidyah (ransom) and ‘aaqila.’ To meet our requirements and societal obligations, we should follow his (PBUH) example.
7: Are Takaful payments more expensive than traditional insurance premiums?
Takaful companies compete on an equal footing with their traditional insurance rivals. As a result, choosing Takaful will not result in any extra costs.
Takaful firms, like any other insurance company, offer a wide range of products, including fire, marine, and motor insurance. Furthermore, the majority of Takaful operators have the expertise and experience to provide custom-tailored specialized solutions for their clients’ advantage and convenience. The only exceptions are dangers that do not comply with Shariah, such as breweries and casinos.
- The procedures, including claims, are identical to those used by traditional insurance firms. The distinction is due to the substance of the contract rather than the procedures.
10: How are Takaful firms’ actions verified to be Shariah compliant?
All Takaful Operators are governed by the SECP’s Takaful Rules, 2005, which mandate the formation of a “Shariah Board” comprised of reputable Shariah Scholars. In addition, each accounting period, all Takaful companies must pass a “Shariah audit” in addition to the standard Accounting audit.
In Pakistan, takaful is a relatively new phenomena. The Islamic Insurance Firm of Sudan was the first Takaful company to be created in 1979. There are already over 100 Takaful companies operating in over 20 countries.
Within some established limitations, there is room for variation in Islam. Several Takaful Models have evolved over the years, all of which have been authorized by Islamic scholars. While they all have the same basic purpose of cooperative risk sharing, the legal structures and functioning of these models differ slightly. The Islamic contracts used to describe Takaful Models include Hibbah, or 100 percent Tabarru’, or Al Mudarabah, or AI Wakalah, or Wakala/Waqf.
A Takaful product in Pakistan must be based on the principles of Wakala or Mudaraba, or both, according to the SECP’s Takaful Rules, 2005. As a result, Takaful companies in Pakistan use a perfected hybrid model known as the “Wakala – Waqf model.” It’s a Wakala model, in which the fund becomes a separate legal entity because to its status as a waqf. The participants and the operator have a direct link with the Waqf fund. The fund’s ‘Wakeel’ is the operator, and participants contribute to the Waqf fund through Tabarru (contribution).
Unlike insurance businesses, which may receive Riba from their investments, Takaful companies invest in real estate, Islamic banks, Shariah-compliant stocks, and other Shariah-approved instruments such as Sukuk bonds.
Although the final result is the same because both insurance and Takaful strive to compensate for potential losses, the key distinction is how each achieves it. When it comes to Islam, the concept of “ends justifying means” does not apply because both the ends and the means must be in order. Chickens can be butchered or electrocuted, and both methods result in the same result: a dead chicken. The former method, however, deems the meat Halaal for consumption, but the latter renders it Haraam.
The Takaful Operator simply acts as the Waqf Fund’s Wakeel. If the Fund has a surplus at the end of the year (after combining all of its income and subtracting all of its expenses), the surplus will be dispersed proportionately among the participants after taking into account any claim benefits already received.
17: Is there a single Participant Takaful Fund or are there different PTFs for different types of businesses?
(Section 8(5) of the SEECP’s Takaful Rules, 2005) “A General Takaful operator may form a single PTF or separate PTFs for different classes of activity.” As a result, the surplus is calculated in accordance with the established procedure.
Is mortgage haram?
A mortgage is haram, yet there are halal mortgages available for those who practice Islam.
Most Islamic religious scholars say that using a conventional mortgage to buy a home is Halal and thus permitted. This is because the interest paid to the mortgage lender is Riba, which is against Islam’s teachings.
While taking out a loan is not halal, any amount charged in excess of the loaned amount is termed Riba, which is severely prohibited in Islam.
What is difference between takaful and insurance?
There are a few other distinctions between the two policies besides the main feature described above. The risk is passed from the insured to the insurer under traditional insurance. Takaful, on the other hand, is built on the principle of shared risk. Each member makes a contribution to a Takaful fund, and in the event of a loss, the participant will be reimbursed for the amount of their claim.
Furthermore, unlike traditional insurance, Takaful participants own a portion of the fund. Participants’ contributions are then invested in ‘halal’ or Sharia-compliant funds to generate investment income. If the fund earns a profit, it is divided among the participants and, in some situations, with the Takaful operator. This results in a win-win situation for all parties involved.
How does an insurance work?
The insurance policy is a legal contract between the insurer and the insured for the insurance. The insurance policy specifies the rules and situations under which the insurance company will pay the insured person or nominees the insurance sum. Insurance is a means of safeguarding yourself and your loved ones from financial ruin. In general, a large insurance policy has a lower premium in terms of money paid. Because very few insured people actually claim the insurance, the insurance firm bears the risk of offering a high level of coverage for a low cost. This is why you can get insurance for a large sum of money at a low cost. Any individual or business can seek insurance from an insurance company, but the insurance company has the final say on whether or not to give coverage. To make a decision, the insurance company will review the claim application. In most cases, insurance firms refuse to insure high-risk applicants.
What are the 3 types of life insurance?
Permanent life insurance is the other significant group. You pay a premium for as long as you live, and your beneficiaries will receive a benefit when you die. Permanent life insurance frequently includes a “cash value” savings component. Permanent life insurance is divided into three categories: whole, universal, and variable.
Insurance that covers you for the rest of your life. The premium for this sort of perpetual life insurance remains the same throughout the policy’s term. Although the premiums initially appear to be higher than the danger of mortality, they can acquire monetary value and are invested in the company’s general investment portfolio. If necessary, you may be able to borrow money from your policy’s cash value or surrender it for its face value.
Borrowing or partial surrendering cash values can diminish the policy’s cash value and death benefit, increase the likelihood of the policy lapse, and result in a tax payment if the policy terminates before the insured’s death. If actual dividends or investment returns decline, if you withdraw policy values, if you take out a loan, or if current charges rise, you may need to make more out-of-pocket payments.
Life insurance that is universal. Universal life insurance takes things a step further. You get the same level of coverage and cash value as a whole life policy, but with more options. You may be able to change the frequency and amount of your premiums once money has collected in your cash-value account. In fact, the policy could be structured in such a way that the invested cash value finally covers all of your premium payments. It’s crucial to keep in mind that changing your premiums could reduce the value of your death benefit.
Life insurance with a variable premium. You get the same death benefit as other types of permanent life insurance, but you have more flexibility over how your cash value is invested with variable life insurance. You can use your cash value to invest in stocks, bonds, or money market funds. Your policy’s value has the potential to increase more quickly, but there is also a greater danger. Your cash value and death benefit may both decline if your assets do not perform properly. Some policies, on the other hand, guarantee that your death benefit will not drop below a specific amount. The premiums for this sort of insurance are set in stone and cannot be adjusted based on the size of your cash-value account.
Another type of variable life insurance is variable universal life. It combines the benefits of both variable and universal life insurance, allowing you to alter your premiums and death benefit as well as invest.
There are costs connected with life insurance, like with most financial decisions. Contract limitations, costs, and charges, which might include mortality and expenditure charges, account fees, underlying investment management fees, administrative fees, and charges for optional services, are common in life insurance policies. Surrender charges are levied on most policies if the contract owner surrenders the policy within the early years of the contract. Any promises are contingent on the issuing company’s financial strength and ability to pay claims. Life insurance is not a deposit, nor is it guaranteed or endorsed by any bank or savings organization, nor is it guaranteed or endorsed by the FDIC or any other government agency.
If taken before age 591/2, withdrawals of profits are taxed as regular income and may be subject to surrender charges as well as a 10% federal income tax penalty. Withdrawals lower the advantages and value of contracts. The investment return and principal value of an investment option in variable life insurance and variable universal life are not guaranteed and fluctuate with market conditions; hence, the principal may be worth more or less than the original amount invested when the policy is surrendered.
Prospectuses are used to sell variable life and variable universal life insurance. Before investing, please examine the investment objectives, risks, charges, and expenses. Your financial expert can provide you with a prospectus that provides this and other information regarding the variable life or variable universal life insurance policy and the underlying investment alternatives. Before determining whether or not to invest, make sure to read the prospectus thoroughly.
Is EFU Life insurance halal?
Worried about how to protect yourself from unforeseen personal or business events while still ensuring that your insurance is halal? You’ve come to the right place.
Our Takaful plans are totally Shariah compliant and are underwritten by EFU Life. Furthermore, the Takaful model of EFU Life is based on the Wakalah-Waqf principle. Individuals in the community contribute to a Waqf Fund managed by a Takaful Operator as part of all of our strategies to safeguard themselves against future financial losses.
We have a variety of options to choose from, so we’re confident we’ll find one that meets your requirements. Choose any of the options below to stop worrying about being uninsured.