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Is Life insurance in Islam halal?
No, life insurance in Islam is not halal; it is haram because typical life insurance breaks 4 Islamic rules:
- Ghara – uncertainty or deception
- Maysir – gambling
- Riba – usury or unjust (insurance has an interest in its calculation)
- Only Allah is responsible for life and death for Islamic people.
However, there is a substitution for typical life insurance called TakafulTakafulis Takaful in Islam.
Takaful represents Islamic insurance, where insurance customers contribute money to a pool system to guarantee each other against loss or damage. Takaful’s branded insurance is based on Sharia law, demonstrating how people cooperate and protect one another. Taka policies cover health, life, and general insurance.
Takaful insurance organizations, which are supposed to violate Islamic restrictions on gambling (riba) and al-Gharar (uncertainty) principles, were introduced as appropriate for those within the commercial insurance sector, all of which are banned in Sharia law.
Importance of Takaful in Islam
- Takaful is an important Islamic insurance policy that prohibits interest. Members contribute money to a pool system and still help each other.
- Takaful links deposits and investments to tangible underlying assets.
- Branded share insurance covers the health, life, and general needs of Sharia and Islamic religious law.
- The claims from the members are reimbursed from the fund.
- Takaful helps financial institutions to get consistent returns, even during the economic downturn.
Know More about Takaful
Under a take-up arrangement, all parties or policyholders agree to guarantee one another and contribute rather than paying pool or mutual fund premiums. The collected pool of contributions creates an invaluable fund. Each participant’s contribution depends on the kind and personal coverage they need. The nature of the risk and coverage is stated in a takaful contract, similar to a conventional insurance policy.
A takaful operator manages the takaful stock on behalf of the participants and charges an agreed-upon fee for the assessment. The cost includes marketing and sales, underwriting, and claim management, much like a conventional insurance company.
The takafulTakafulut all claims made by participants; the fund’s participants – not the takaful operator – have surpluses available after making provisions for the likely costs of other reserves and future claims. These funds can be distributed as cash distributions and dividends to participants or through a reduction in future bids.
The following principles must be applied to an Islamic insurance company operating a taka fund:
- It must function by Islamic principles of cooperation.
- Only Islamic insurance and reinsurance companies can receive or pay a reinsurance commission.
- The insurance company has two separate funds: one participant, one policyholder, one shareholder fund, and another.
Special Considerations
According to a Research and Markets report, the global market is growing fast. By the end of 2017, it amounted to approximately USD 19 billion, and life and family were the largest segments. Furthermore, thanks partly to large global Muslim populations—in particular in Asia-Pacific—Takaful is expected to rise to $40 trillion by 2023.
Young Muslims make up approximately 60% of the population and are more likely to grow the takeout market in the future. According to the report, some of the biggest names in the taka market are thought to be:
- Islamic Insurance Organization
- Zurich Malaysia
- Allianz
- Standard Chartered
- Prudential BSN Takaful Berhad
- Takaful Malaysia
Takaful vs. Conventional Insurance
Most Islamic jurists conclude that conventional insurance in Islam is unacceptable because, for the following reasons, it does not comply with Sharia law:
- Conventional insurance covers an al-gharar element of uncertainty.
- The concept and practice of charging interest are based on conventional insurance. On the other hand, Islamic insurance is based on tabarru, where some of the participant’s contributions are treated as a grant. That’s why policyholders usually consider themselves participants in Takaful insurance.
From 2022.,Jason writes educational insurance articles for Promtinsurance.com.
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