Life insurance becomes necessary in this Era because the death ratio in this global world increases with time. Sometimes it happens because of accidents, and sometimes it’s very sudden that families left behind are in great shock that they Need financial and moral support at the same time. Even Islam also teaches us to take Precautionary measures to look after our family even after we die.
What is Life Insurance?
A contract with an insurance company is known as Life insurance.
In exchange for premium payments, the insurance company issues a lump-sum payment, known as a death benefit, to beneficiaries upon the insured’s death.
Why should you buy Life Insurance?
Parents with small children :
If a parent dies, the loss of their caregiving skills could create a financial gap for their children.
Life insurance ensures that the kids will have the financial resources they need until they can support themselves.
Adults who own property together – Life insurance must be a good idea if an adult is Married or not, and if the death of one adult would mean that the other Person could no longer afford loan premiums and taxes on the property.
Wealthy families who expect to owe estate taxes – Life insurance can provide funds to cover the taxes and keep the estate’s full value intact.
Families who can ’t afford burial and funeral expenses – A small life insurance policy can provide funds to honor a loved one’s passing.
Businesses with critical employees – If the death of a key employee, such as a CEO, would create a severe financial hardship for a firm, that firm may have an insurable interest that will allow it to purchase a life insurance policy on that employee.
Married pensioners – Instead of choosing between a pension payout that offers a spousal benefit and one that doesn’t, pensioners can choose to accept their full pension and use some of the money to buy life insurance to benefit their spouse. This strategy is called pension maximization.
Advantages of Life Insurance: Most people use life insurance to provide money to beneficiaries who suffer financial hardship upon the insured’s death.
Creates employment opportunities: I n the modern-day business world, Insurance has become a sort of business hundreds of entrepreneurs and thousands of employees have been engaging in this line.
Hence by developing and establishing insurance companies, it has provided employment opportunities to many people, as per their qualification and caliber.
Funding Retirement – a source of retirement income is the policy with a cash value or investment component.
This opportunity can come with high fees and lower death benefits, so it may only be a good option for individuals who faced other tax-advantaged savings and investment accounts.
Avoiding Taxes – The death advantage of a life insurance policy is usually tax-free. Wealthy individuals sometimes buy permanent life insurance within a trust to help pay the estate taxes that will be due upon their death.
Comparing Types of Life Insurance
Insurance Universal Life Insurance Whole Life
Needs it helps meet Income replacement during working years Wealth transfer, income protection and some designs focus on tax-deferred wealth accumulation Wealth transfer, preservation and, tax-deferred wealth accumulation
Protection period Designed for a specific period (usually a number of years) Flexible; generally, for a lifetime For a lifetime
Cost differences Typically less expensive than permanent Generally more expensive than term Generally more expensive than term
Premiums Typically fixed Flexible Typically fixed
Proceeds paid to beneficiaries Yes, generally income tax-free Yes, generally income tax-free Yes, generally income tax-free
Investment options No No2 No
May help build equity No Yes Yes
Available through Fidelity Yes, Fidelity Term Life Insurance3 Yes, Universal Life Insurance, primarily focused on death benefit protection No, traditional Whole Life Insurance is not currently offered
The Islamic perspective: Term life insurance
This kind of Insurance is very much equivalent to all the other types of protective insurance discussed in the previous article. The same arguments apply, namely:
The kind of gharar that is being forbidden in the hadith is not the kind of gharar involved in modern Insurance;
The many positives of Insurance outweigh the negatives; and
if we accept takaful as Shariah-compliant, we must accept conventional Insurance as Shariah-compliant as there is little substantive difference between the two.
There may, however, be a few unique objections to life insurance in particular, which cannot be leveled against other kinds of Insurance, so let’s test if they’re compelling.
THE ISLAMIC PERSPECTIVE: WHOLE LIFE INSURANCE
Fundamentally, there is no problem with whole life insurance – but in reality, there will be for most people living in the West.
This is because this type of Insurance is best characterized as an investment and the permissibility of the investment depends on the underlying assets which are invested in.
This is not a problem in the Middle East if you opt to go with a takaful operator who will be restricted by their internal policies to invest only in halal assets.
Is Life insurance allowed in Islam?
Anas ibn Malik reported: A man from the Ansar came to the Prophet, peace, and blessings be upon him, and begged from him.
The Prophet said, “Have you nothing in your house?” The man said, “Yes, a piece of cloth, a part of which we wear and a part of which we spread on the ground, and a wooden bowl from which we drink water.”
The Prophet said, “Bring them to me.” The man brought these articles to him, and the Prophet took them in his hands, and he said, “Who will buy these?” Someone said, “I will buy them for one coin.”
The Prophet said twice or thrice, “Who will offer more than one coin?” Someone said, “I will buy them for two coins.”
He sold them for two coins, and the Prophet said, “Buy food with one of them and give it to your family. Buy an ax and bring it to me.”
The man brought it to him. The Prophet fixed a handle on it with his own hands, and he said, “Go gather firewood and sell it, and do not let me see you for a fortnight.”
The man went away and gathered firewood and sold it. When he had earned ten coins, he came and bought a garment and food.
The Prophet said, “This is better for you than for begging to come as a blemish on your face on the Day of Resurrection. Begging is appropriate only for three people: one in severe poverty, one in severe debt, and one who must pay difficult compensation.” [Abu Dawud]
The Prophet also said, “” It is the duty of a Muslim who has anything to bequest not to let two nights pass without writing a will about it” (Sahih al-Bukhari).” Again, Islam teaches us to take all necessary precautions for looking after our family even after we die. Islam forbids one from bequeathing more than 1/3 of the inheritance to other than the set people who are the deceased’s, immediate family.
Frequently Asked Question( FAQS ):
What is Gharar?
The argument against conventional Insurance is that it involves riba (interest), gharar (uncertainty), and may (gambling). This article will focus on the most vital and most central of these objections: gharar.
What is Takaful?
Branded Insurance is based on sharia or Islamic religious law, which explains how individuals are responsible for cooperating and protecting one another.
What is pension maximization?
It is a retirement strategy for couples to choose the highest possible annuity payout for one spouse’s lifetime while obtaining life insurance to provide income for the surviving spouse.
What are Premium payments?
An insurance premium is the amount of money an individual or business pays for an insurance policy.
Finally, it is proved through the article that Life insurance is very Useful and had long-lasting effects for the beneficiaries.
Islam also allows the Person to take precautionary measures to look after their families.
I think the above arguments are relatively straightforward so that I won’t repeat myself here. In short, if you are considering life insurance, see if it is term insurance or whole life insurance.
If term insurance, my view is that it is okay. If whole life insurance, my opinion is that it is also acceptable to control the investments being sharia-compliant.