Is Life Insurance Haram or Halal?

We want to secure the future of our families after our death and life insurance provides this feature. However, there has been an active debate in the financial circles if the life insurance is Halal or Haram?

How does life insurance work?

The life insurance policy is an agreement between the policyholder and the insurance company where;

  • the policyholder pays a periodic premium to the insurance company over the term of the insurance.
  • In case of the death of the policy holder, the family will get a large amount of money.
  • At the end of the policy, the policyholder will receive a large amount of money if he is alive.

Is Life Insurance Halal or Haram?

It has been the consensus of most Islamic scholars that life insurance is not Halal. Why do they consider life insurance Haram? There are 2 reasons;

Interest Income

The profit of most insurance companies is interest income i.e. Haram in Islam. When they are earning interest with your insurance premium, ultimately you or your family will receive this. Hence, this is the first reason life insurance is considered Haram in Islam.

However, some insurance companies do not earn interest income as they invest their funds in real estate, manufacturing, or trading businesses. This is the reason, many people believe that it is Halal to invest in these kinds of insurance companies e.g. state life insurance. However, this is not the case.

Betting on your life

The second reason the life insurance is Haram is that you are betting on your life. If a policyholder dies after paying only one insurance premium, his family would get the full amount of insurance.

The policyholder had not earned this money in the ways allowed by Islam. Therefore, even if the insurance company does not earn interest income, the life insurance is Haram due to the gambling element.

Have faith in Allah

If Allah is feeding you throughout your life, he can feed your children as well. You need to have belief in Allah.

If you still want to secure their future, there are many options available like making investments in real estate, savings, business and many other investments which can generate a regular flow of income.

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Steve has been living in Saudi Arabia since 2013 and writing about Saudi rules, regulations, guides, and procedures since then.