Is Life Insurance Haram or Halal?

Is life insurance haram or halal?

The Qur’an does not specifically mention life insurance, but it does teach Muslims to be responsible and care for their families. Some types of life insurance can be halal if they adhere to specific guidelines and principles, while others may be considered haram.

Some scholars argue that traditional life insurance (i.e., a permanent policy) is haram because it is a form of gambling—you pay small premiums but get a large payout if something happens. There are three Islamic principles at play here:

• Riba (interest): A permanent policy generates interest, so you receive more money than you contributed

• Gharar (uncertainty): You may be paying for something you never benefit from
• Maysir (gambling): You may be seen as making a bet against your life

On the other hand, term life insurance and takaful policies may be considered halal, or permitted, under sharia law. Here’s why:

• They do not generate interest
• They are not investment vehicles
• The risk-sharing and benefit-sharing are cooperative
• Parents’ life insurance protects children

Term life insurance policies are available from most life insurance companies in Canada, including PolicyMe.

Here’s what the experts say

The Muslim community has varied views on life insurance and personal finance in relation to Islam. Opinions vary based on the type of policy, too.

"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

Some say conventional insurance is haram: 

• "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
• “What makes Gharar illegal is not only the level of uncertainty but also the fact that risk is not shared among the contracting parties.” —Professor Murat Çizakça

Others say life insurance is halal: 

• "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
• "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

Islam puts a strong emphasis on protecting and providing for your family and your children. 

Historically, there were cooperative systems where people pooled money to support one another in emergencies. Modern life insurance follows the same principle, giving Muslim Canadians a way to fulfill their duty to family. 

Islamic principles related to insurance

There are three main Islamic principles related to finance:

• Riba (ربا, or interest)
• Gharar (غَرَر, or ambiguity)
• Maysir (ميسر, or gambling)

Riba is unearned income. There are references to riba in four surahs in the Qur’an, including “Allah has cursed the one who consumes riba, the one who pays it, the one who records it, and the two witnesses to it.” The prohibition of riba—such as interest-bearing insurance models—helps protect the poor and the accumulation of wealth to ensure money circulates in a society.

Gharar is something where the outcome is undetermined, and there are two types: Gharar fahish (excess Gharar) and Gharar yasir (light Gharar). Light gharar is the uncertainty common in daily life, so it’s acceptable under Islamic law. But speculative activities associated with investing—especially in universal life and whole life insurance policies—are considered excess gharar and unacceptable. 

Maysir means gambling, or the easy acquisition of wealth by chance. Gambling is prohibited, according to Surah Al-Bakarah and Surah Al-Maidah in the Qur’an. Risk must be shared in Islam.

Islam has several others principles that can help Muslims understand how to manage money:

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• Khalifah: Humans are simply stewards of money because all wealth belongs to Allah SWT. 
• Amanah: You are trusted with money thanks to Allah, so you must earn, spend, and invest it wisely and honestly for the benefit of the whole community (maslahah, or public interest).
• Adl: Islam asks you to act justly, acting fairly when paying wages and avoiding exploitation of others (darar, not causing harm). 
• Zakat and sadaqah: Obligatory and voluntary charity are important Islamic principles that help redistribute wealth, alleviate poverty, and build social solidarity through mutual aid.

The bottom line

Many say it is possible for Muslims to have life insurance while following the principle of tawakkul (trust in Allah). This means you understand that life and death are in God's hands, but you can still provide for your family by paying for ethical and just protection without hoarding or gambling.

Sharia-compliant alternatives to life insurance

Takaful is Islamic life insurance, and it’s a Sharia-compliant alternative to other types of insurance:

• Health, life, and other insurance policies available
• Cooperative model where risk and reward are shared 
• Participants support each other through a joint pool
• No gambling or making money from uncertainty
• Sharia-compliant investments

Takaful vs. traditional life insurance

The main difference between takaful and conventional life insurance is that takaful policies are based on Islamic principles like shared risk, and they include only Sharia-compliant investments.

Here’s a comparison of takaful Islamic insurance and traditional life insurance that shows why takaful is more widely accepted by the Islamic community.

Why term life insurance may be halal

Term life insurance is considered halal by some Islamic financial experts because it is not an investment vehicle, yet it still gives your family financial protection. Therefore, it is Sharia-compliant and does not include riba (interest gained or cash value).

Term life insurance can be a practical and ethical choice for many Canadians. It offers affordable coverage that provides peace of mind and financial security for your loved ones. Whether you choose an individual or joint policy, you can designate beneficiaries for your death benefit through a product that avoids gambling, investment components, and interest-based (non-Sharia-compliant) transactions.

5 questions to help you decide

You now know what the Islamic scholars say about different forms of insurance, but here are questions you can lean on when doing your own research into life insurance:

1. Does the policy have an investment or cash-value component?
2. How are the funds invested?
3. Is there a Sharia advisory board or certification?
4. How much ambiguity (gharar) is involved?
5. What are your family’s needs, financial situation, and risk tolerance?

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Take your time and consult the hadith or a shaykh in your community about additional concerns. If you know you need some kind of life insurance, have a conversation with someone you trust about financial planning.

FAQ: is life insurance haram