Is Life Insurance Permissible?
Shafi'i Fiqh
Answered by Shaykh Irshaad Sedick
Question
My mother had life insurance, and when I turned 18, I was supposed to receive the money. The issue is that she didn’t know that life insurances are haram. I knew it was haram but didn’t know she had one until I was supposed to receive the money. What am I supposed to do? Is the money haram? (she made zero profit).
Answer
In the Name of Allah, the Most Merciful and Compassionate. May Allah alleviate our difficulties and guide us to what pleases Him. Amin.
You may use the funds, and since it is the capital amount, the funds are permissible, and Allah knows best.
There are three essential points to consider in this question:
First, life insurance is not unlawful unrestrictedly. While most conventional Life Insurance are unlawful, some lawful products have been developed that are lawful. See: Tazkiya Family Takaful.
Second, If your mother enters some unlawful contract, the income is unlawful for her. When this income is transferred to a second owner, it is not unlawful for him to use it.
Third, the funds are permissible to use since there were no profits, as described. The capital amount entered into any unlawful contract remains permissible, while any accrual would be unlawful.
Unlawful Income and Investments
Investments of this nature usually have a percentage of NPI (non-permissible income) that accrues through interest/usury (riba) and shares from companies with impermissible transactions, etc.
(According to the late contemporary Shafi’i Mufti and expert on Islamic finance, Mufti Taha Karaan (may Allah have mercy on him), this percentage usually amounts to less than ten percent of the total accrual).
Muslims should avoid unlawful income as much as possible. When complete avoidance is impossible, he can take off as much as he paid in and the accrual from lawful sources. As for the unlawful sources of income, he has to determine the percentage accrued from NPI (usually seven percent) and eliminate it by spending on charitable causes that would benefit the general public.
Transferring Ownership of Unlawful Income
The above rules apply to the owner of the money. If, however, the money is transferred to others, such as one’s heirs, then the impermissible nature of the accrued funds is not transferred to the recipient. If the money is unlawful because of how it is acquired, the sin is only on the one who acquired it, and there is no sin on the one who engages in a transaction with the one who acquired it, such as buying, selling, gift-giving, or hosting a guest.
The evidence for that is that the Prophet (may Allah bless him and give him peace) used to engage in transactions with the Jews in Medina, buying and selling. He used to eat with them, even though Allah (Most High) described them as consuming interest (riba) and unlawfully taking people’s wealth.
The Nature of Income Changes Upon Transfer of Ownership
Whenever a meal was brought to the Prophet (may Allah bless him and give him peace), he would ask whether it was a gift or charity (sadaqa) because consuming charity was forbidden for the Prophet (may Allah bless him and give him peace). If he were told it was charity, he would tell his Companions to eat it, but he would hurry to share it with them if it was a gift. [Bukhari]
On one occasion, some meat was brought to the Prophet (may Allah bless him and give him peace), and it was said that the meat had been given in charity to Barira (may Allah be pleased with her). He said, “It was Sadaqa for Barira but a gift for us.” [Bukhari]
The View of the Malikis
Based on the above, when this money acquired by unlawful means is transferred to others, such as heirs, it becomes lawful for them, which is the view of the Malikis.
Muhammad ‘Ulaysh Al-Maliki (may Allah have mercy on him) said: “There is a difference of opinion concerning wealth that was acquired by unlawful means, such as interest (riba) and invalid transactions. If the one who acquired it in that manner dies and leaves it behind, is it permissible for the heirs – which is the correct view – or not? As for unlawful wealth in and of itself, and its rightful owner is known, such as wealth taken by force or stolen, it is not permissible for the heir. [Manh Al-Jalil Sharh Mukhtasar Khalil]
I pray this is of benefit and that Allah guides us all.
[Shaykh] Irshaad Sedick
Checked and Approved by Shaykh Faraz Rabbani
Shaykh Irshaad Sedick was raised in South Africa in a traditional Muslim family. He graduated from Dar al-Ulum al-Arabiyyah al-Islamiyyah in Strand, Western Cape, under the guidance of the late world-renowned scholar, Shaykh Taha Karaan.
Shaykh Irshaad received Ijaza from many luminaries of the Islamic world, including Shaykh Taha Karaan, Mawlana Yusuf Karaan, and Mawlana Abdul Hafeez Makki, among others.
He is the author of the text “The Musnad of Ahmad ibn Hanbal: A Hujjah or not?” He has served as the Director of the Discover Islam Centre and Al Jeem Foundation. For the last five years till present, he has served as the Khatib of Masjid Ar-Rashideen, Mowbray, Cape Town.
Shaykh Irshaad has thirteen years of teaching experience at some of the leading Islamic institutes in Cape Town). He is currently building an Islamic online learning and media platform called ‘Isnad Academy’ and has completed his Master’s degree in the study of Islam at the University of Johannesburg. He has a keen interest in healthy living and fitness.
