Navigating Whole Life Insurance in Islamic Finance: Balancing Protection and Shariah Compliance #

Whole life insurance is a combination of protection with a savings vehicle if held for over 15 years and above. An insurance plan is always a long-term financial commitment.

Suppose you purchase a policy at the age of 25 for S$100 per month with a minimum payout of S$32,000 at age 50. If you die before turning 50, your dependents will receive S$32,000. You would hope to live beyond 50 and that the underlying savings elements perform well enough for you to receive S$50,000 or more by then. (This is just an illustration since, in whole life police, there is no investment from which you can choose. It is an autopilot decision by the insurer to invest mainly in bonds).

Conventional insurance is viewed as unlawful (due to Shariah non-compliance in the structure of the buy and sell contract) but can be considered acceptable/forgivable in the absence of a takaful version for the Singaporean context.

There are two potential approaches to dealing with this situation: (1) obtain a policy in which one can cover the basic needs of a family. And ensure to your best ability that the underlying investments of the policy are invested in shariah compliant manner ( it may not be shariah compliant with a critical condition that it can only be consumed if one purchase is based on necessities); or (2) obtain a term policy and the extra saved from the term insurance policy is then invested by you directly to assets are predominantly Shariah-compliant, with the condition that the unlawful portion is given away to charity (Caveat: we might not be able to ensure the shariah compliance to the best of our ability)

All in all, most of the intention of whole life insurance policy subscribers is to provide income and an uninterrupted lifestyle for the family after death, especially if they are the sole breadwinner. It is true that upon death, you are relieved of your worldly responsibilities – except for your debts with the creditor(s), and Allah SWT will provide for those left behind. However, we are taught in our Shariah to “trust in Allah, but tie your camel”, which represents the true meaning of tawakkul(to put in one’s best efforts to do what Allah SWT expects one to do and then leave the results to Allah’s will).

Nonetheless, we advise the person asking this question and our community to act on syubha (doubtful) matters with caution and based on your respective necessities so as to preserve Allah’s pleasure (redha) on us. And hopefully, with the pure intention of striving for the lawful and Allah’s pleasure, our affairs are eased as well as blessed by His bountiful sustenance.
Allah SWT says in surah al-Talaq, verses 2 and 3:
“And whoever fears Allah – He will make for him a way out (2) And will provide for him from where he does not expect (3)”.

Allah knows best.