Personal Finance Question: Income Protection Insurance

Everyday Islamic Finance Personal and Family Finance
#1

Is income protection insurance halal?

Workplace benefits
#2

A prior question to that is whether insurance itself is halal.

Here’s our views on the topic: https://www.islamicfinanceguru.com/personal-finance/insurance-haram-halal/

Please do note that our view is a minority view.

But if you consider insurance halal - your question is answered in the affirmative. If you decide insurance is not halal, then income protection insurance is also not halal.

#3

Salaams

Thanks for the reply.

Please can I have views from the Mufti’s also.

Assuming that one takes the minority view that insurance itself is halal, please can you provide further details on how the payout(s) from insurance companies could be considered halal becuase they could invest the premiums paid in assets that might not be allowed in Islam.

Furthermore, would it be better to select a mutual insurance provider over one that has shareholders (or does this not make a difference to where the premiums are invested?)

I am thinking that as a mutual does not have shareholders, it could pool more of the premiums from all members together for paying out, whereas a company might invest in all types of assets to generate a profit for shareholders as well.

Many thanks for sharing your knowledge.

#4

Assalaamu alaykum,

The majority of the scholars as well as leading practitioners in Islamic Finance are of the view that insurance in its current practice is not Shariah compliant. I also believe this to be the sound position. I will be writing a detailed answer on why it is not Shariah compliant soon which will be on this website.

Therefore, you should not purchase an income protection policy as it fails the contractual requirements for Shariah compliance.

Allah knows best

#5

For completeness, on your two questions:

  1. If you take the minority view, then it doesn’t matter where the insurance company makes its money from as you have a contractual relationship with them that is not reliant on their underlying activities. If however there is an investment element to your insurance policy (e.g. some life insurance policies have this) then you should of course not take out such a policy/the money would be impermissible.

  2. Yes, a cooperative/takaful company wherever available is preferable. This is as their ethos is morally preferable.

#6

Salams

I am feeling so conflicted regarding this and I have been thinking about Income Protection for many years but have not taken it out.

From one perspective not much wrong with -

  1. Income protection from a mutual where the contributions are pooled together to buy funds pay out to members (like a cooperative)

  2. To chose this because of the lack of any Shariah compliant alternatives.

  3. The avoidance of difficulties if one were to lose a job. Thereby avoiding becoming someone that needs financial assistance and be a burden on family/friends.

  4. Is income protection not a sensible precaution, not having a fatalism mindset. Similar to the tying of a camel Hadith.

Of course there is so much more Shariah technical considerations.

Please can IFG provide further guidance.

Thanks