Is Life Insurance Haram or Halal in Canada?

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In This Article

Key takeaways:

  • Traditional life insurance may be considered haram because of three elements prohibited by Islamic law: uncertainty (gharar), gambling (maysir) and interest (riba)
  • The Qur'an doesn't specifically mention insurance, but teaches responsibility and caring for your family, aligning with life insurance policy
  • Term life insurance may be halal, depending on the specific policy, because there is no investment component (avoiding riba)
  • Takaful is a special kind of Shariah-compliant insurance, where everyone contributes to a shared pool, avoiding "gambling" and uncertainty

Is life insurance haram?

Some believe that traditional life insurance can be considered haram, or not allowed, because it may involve prohibited elements like:

  1. Gambling (maysir)
  2. Interest (riba)
  3. Uncertainty (gharar)

The concern is that you might be paying for something that you may never benefit from, or you could receive more money than you've contributed, both of which can be seen as uncertain and risky. In a study measuring the impact of Islamic beliefs on the intentions to buy life insurance, it was found that the higher an individual's Islamic beliefs, the more likely they were to view life insurance poorly.1

But there are Islamic insurance products that are widely accepted by the community, like Takaful insurance, cooperative insurance and term life insurance. Generally, insurance policies like a whole life insurance policy or universal life insurance policy are considered haram or not Shariah-compliant.

What do Islamic experts say about insurance and personal finance?

Here are a few excerpts from publicly available sources breaking down the varied views on life insurance policy from the Muslim community.

"The idea of Baitul Mal (House of Wealth/Exchequer of an Islamic State) is similar to that of an insurance company. It was where the revenues of the state were collected and where any citizen facing a financial crisis found sanctuary." — Salma Taman, Indiana University, Robert H. McKinney School of Law

"Life insurance does not contradict the requirements of Islam. This insurance is similar to the principles of compensation and shared responsibility among the community where all participants guarantee each other against unpredicted future financial risk." — financialislam.com

"Conventional insurance relies on interest-based investments and is entirely rooted in un-Islamic, speculative investments. The insurance provider gambles on receiving more income from the premiums [...] than it has to pay out." — Islamic Relief Worldwide

"There are two kinds of life insurance. One is best understood as the standard protective insurance, while the other is best characterized as an investment vehicle. The former is permissible, while the latter is only permissible if the underlying investments are permissible." — Ibrahim Khan, Islamic Financial Guru

What does the Qu'ran say about life insurance?

The Qur'an doesn't specifically mention life insurance, but it does teach Muslims to be responsible and care for their families.

Life insurance can be a way to provide financial protection for your loved ones, which is in line with these teachings. However, it's important that the insurance you choose follows Islamic rules and principles to make sure it fits with the faith.

One type of life insurance that is designed to follow Islamic principles is called Takaful. Takaful works by having people come together to help each other and share their risks. This way, Takaful follows values like cooperation and mutual support, which are in line with Islamic teachings. While the Qur'an doesn't directly talk about life insurance, it does encourage Muslims to care for their families and Takaful can be a good option for that.

What is Sharia-compliant life insurance?

Sharia-compliant life insurance is a special kind of insurance that follows the rules and principles of Islam. It's like a safety net to protect you and your family, but it's designed to fit with Islamic beliefs and values.

One popular form of insurance that is compliant with Sharia laws is called Takaful (but cooperative life insurance and term life insurance may also be considered compliant).

What is Takaful?

Takaful is a unique kind of insurance that follows the principles of Islam, making it different from other types of insurance.

  • Takaful policies cover health, life and other general insurance needs in the same way any other insurance product would.
  • Takaful insurance works by having people come together to help each other and share their risks. Everyone contributes costs to a shared pool. This way, it doesn't involve things like gambling or making money from uncertainty.
  • Takaful is different from other insurance because most insurance works by having an insurance company take on your risk in exchange for money (premiums paid).
  • Takaful is based on people coming together to help each other and share their risks.

Takaful vs. traditional life insurance

How does Takaful compare with conventional/traditional life insurance? Why is one option more widely accepted by the Islamic community versus the other? Here's a head-to-head of the two types of coverage:

Takaful Traditional life insurance
Policies are set up to meet specific Muslim standards Policies are set up to meet the needs of a diverse group of clients
Shared risk with all policyholders The insurance provider takes on risk
All investments made are Shariah Law-compliant Investments may not need to meet Islamic standards
Investment profits are shared with all policyholders Investment profits may be shared with shareholders

When it comes to Takaful versus traditional life insurance options, it's all about choosing what aligns best with your values and needs — a financial safety net for your family can be both Halal and practical. And there are options other than Takaful that are Sharia-compliant, which we'll get into below.

Is term life insurance halal?

Term life insurance may be considered halal by some Islamic financial experts. But what is a term life insurance policy, exactly? Term life insurance policy is some of the most affordable and straightforward life insurance that provides financial peace of mind for a set period.

Term life insurance is considered compliant with Sharia laws by some in the Muslim community because it is not an investment vehicle. Term policies are simply used as financial protection during the years in which a family needs it the most (like while paying off the house or before the kids grow up).

The bottom line is that term life insurance doesn't earn interest, so it may be better than whole life insurance or universal life insurance, which have investment and cash value components.

Next steps: Islamic life insurance coverage

  1. Take a moment to reflect on what you've learned about life insurance in the context of Islamic principles. Remember, it's important to align your financial decisions with your beliefs.
  2. Reach out to an expert or simply other members of your Muslim community with an understanding of Islamic insurance.
  3. Think about your personal and family needs. What kind of coverage makes the most sense for you? And how much coverage do you need? Remember, the goal is to provide financial protection for your loved ones.
  4. Use all the information you've gathered to make an informed decision. Whether it's Takaful or another type of insurance, choose the option that best fits with your faith and meets your needs.

PolicyMe's life insurance calculator makes things easy, considering all the little details to determine how much life insurance you need to financially protect your family. Plus, it looks at your partner's earnings and your savings so you don't end up with more life insurance than necessary.

FAQ: Is life insurance haram?

What is Islamic life insurance?

Islamic life insurance, also known as Takaful, is a unique form of insurance that adheres to Islamic principles while offering financial protection. Unlike conventional insurance, which may involve prohibited practices such as gambling and earning interest (riba), Islamic life insurance operates in accordance with Sharia law.

Takaful involves individuals pooling their resources to support one another in times of need, without engaging in activities deemed haram. This cooperative approach ensures that risks are shared among participants, promoting solidarity within the community. Through Takaful, individuals can secure a life insurance policy that aligns with their religious beliefs and values, providing a lump sum payout to beneficiaries in the event of the insured's death. Before choosing a life insurance company, it's essential for individuals to conduct due diligence to ensure that the provider offers Sharia-compliant products, such as whole life insurance policies. By selecting a reputable insurance company that offers deemed halal options, individuals can have peace of mind knowing that their financial matters are handled ethically and in accordance with Islamic principles.

Why isn't conventional insurance Sharia-compliant?

Conventional insurance isn't considered Sharia-compliant because it may involve elements that go against the rules and principles of Islam. Some of these elements include gambling, making money from uncertainty, and earning interest (riba), which are not allowed in Islam.

What kind of life insurance can Muslims buy?

Muslims can buy life insurance that follows the rules and principles of Islam, making sure it fits with their beliefs and values. This special kind of insurance is called Takaful, and it's designed to provide financial protection for you and your family while aligning with Islamic teachings.

Is life insurance halal?

Life insurance can be halal, or permissible in Islam, if it adheres to specific guidelines and principles. Traditional life insurance may not always meet these criteria as it can involve elements like gambling and interest (riba), which are prohibited in Islam. However, there exists an alternative known as Takaful, an Islamic insurance model crafted to align with halal principles.

Takaful operates on the premise of mutual assistance and risk-sharing among participants, making it a viable halal option for those seeking financial protection. By opting for Takaful, individuals can ensure that their life insurance policy complies with Islamic teachings, offering peace of mind and financial security. It's crucial to conduct due diligence when selecting an insurance company to ensure they offer deemed halal options such as whole life insurance policies that meet Sharia requirements.

Is whole life insurance haram?

Whole life insurance is often considered haram because most whole life policies have an investment component, which is forbidden by the principles of Islam. This is because policyholders would technically be participating in gambling and making money from uncertainty.

What are Shariah-compliant investment funds?

Shariah-compliant funds are a type of investment that fits into the wider category of socially responsible investing. They operate like other ethical funds but have specific rules to align with Islamic principles.

Though they've been around since the 1960s, these funds have only recently become trendy. The real game-changer was in the early 200s, when there was a surge in oil money and the financial markets in the Gulf countries stepped up their game, making it easier to invest.

Is Islamic life insurance taxable?

Just like your regular life insurance, Islamic life insurance isn't something you can typically deduct from your taxes in Canada. That means the amount you pay for your policy isn't going to lower your tax bill.

Tax rules can vary based on different situations, so if you're unsure about how your Shariah-complaint life insurance fits into your taxes, it's wise to consult a tax professional or visit the CRA website.

Our sources:

1 Souiden, N., & Jabeur, Y. The impact of Islamic beliefs on consumers’ attitudes and purchase intentions of life insurance. International Journal of Bank Marketing. https://www.emerald.com/insight/publication/issn/0265-2323

Islamic Insurance (Takaful). Institute of Islamic Banking and Insurance. https://www.islamic-banking.com/explore/islamic-finance/islamic-insurance-takaful

Khan, I. Life Insurance: Is it haram or halal? Islamic Financial Guru. https://www.islamicfinanceguru.com/articles/personal-finance/is-life-insurance-haram-or-halal

Life insurance. Financial Islam. http://www.financialislam.com/life-insurance.html

Takaful (co-operative insurance). Islamic Relief Worldwide. https://islamic-relief.org/takaful-co-operative-insurance/

Taman, S. The Concept of Corporate Social Responsibility in Islamic Law. McKinney Law. https://mckinneylaw.iu.edu/iiclr/pdf/vol21p481.pdf

Laura McKay

COO & Co-Founder
About the Author

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