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Is Life Insurance Halaal?

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Q. Is it okay to go for life insurance? What is the Islamic position on this? Could the life be insured? – Sana Sultan, Bangalore

Editor replies:

Life is of course God-given and it is He who withdraws it. The time of death is not known except to God himself. So what emerges from it is that no one can ensure durability of life or predict the time of death. Life Insurance companies too do not claim that they can ensure a term of a life for an individual who is opting to buy their policy.
So the question is why Life Insurance? Life insurance is a financial instrument for covering the risk of untimely death for an individual. Policy documents of Life Insurance merely cover the risk of an early or untimely death, accident or injury or hazards faced during a journey or sickness during foreign travel.
One can remain sure that Life Insurance companies do not infringe any Islamic rule or law. When one goes for a Life Insurance Policy, he or she promises to pay a fixed amount for a fixed term towards Insurance to the company. The company provides a guarantee that it would pay fixed sum to him or her after the maturity of the period. Or in case the policy holder dies before the term of maturity, his nominees (mostly spouses or children) would get the sum ensured even if only the first installment of the fixed sum has been paid, no questions asked.
This is done on the basis of general life expectancy in a society at a particular time. It is presumed that most people would die only at ages between, say, 65 to 80. But it is common to see that generally 5% people in a given society die prematurely, say at 40 or 50 or meet fatal accidents. The Life Insurance is run on the basis of thinly spreading the risk on all people and helping the next of kin of those who die early.