usage of life insuarance

[Unregistered]

I am aware that life insuarance is haraam however can it be used to pay off a debt that has interest? Example a bond?

[Mufti Yusuf Moosagie]

Walaikum Salaam

Insurance is Haraam because there is an aspect of interest and gambling in it. Gambling is found in this manner that, from one party the payment of monthly premiums is definite, whereas receiving anything from the insurance broker is not definite but only possible. There is possibility of all the premiums being lost and there is the possibility of getting more than the premiums. [Ref: Fataawa Mahmudiyyah Vol, 16 Pg, 387]

If anyone is involved in such a contract of insurance which maybe compulsory (example: one is forced by the government or it is a rule of a country), then he can carry on, but whatever extra they are giving him, he must not take it. I.e. he should leave it with them and just take whatever amount he contributed. If they insist that he take the extra amount or in the case where one has already taken the extra, then one should give the extra amount away to the poor without any intention of reward.

Now in the case where one previously voluntarily got involved in insurance without being forced, and now realizes the evil of and wants to come out of this evil, then he should talk to the financial institute and inform them that he wants to cancel the contract. He may ask for a refund of the premiums which he already paid to them. The money refunded for the premiums that were paid, is Halaal and one is at liberty to spend it as one pleases. Anything above the premium that was paid will be considered as interest money and Haraam money.

If a person has interest or any other haram wealth in his possession, there are two ways to disposing of it. It could be given to the original owner from whom it was received or else it should be given to the poor without hope of receiving any reward.

So to sum it up, if you received the insurances money from the very same financial institute/bank from which the bond was taken, it would be permissible for you to use the insurance money to pay for the bond. However, if you received the insurance money from a different financial institute /bank, then it would not be permissible for you to pay the bond with this insurance money.

AND ALLAH TA'ALA KNOWS BEST