Understanding the Halal Status of Insurance Payouts and Zakat Obligations in Islamic Finance #
Original Question: Due to a heart attack, my insurance policy was terminated and given a large amount of money. Is this halal? Do I need to do zakat if the money is kept till haul the haul is reached?
Considering that no Takaful products are available and offered in the Singapore market, it is a given legal concession (rukhsah) to subscribe to conventional insurance for as long as Takaful/ cooperative insurance is absent and the alternative is needed to facilitate (safeguard and promote) human well-being.
Therefore, medical compensation from a conventional insurance policy may be considered lawful. However, it is only permissible to the extent that what is needed to monetary deter the economic well-being disruption caused by unforeseen medical issues (i.e., unforeseen medical expenses, income disruption).
This is because, from the perspective of Islamic legal maxim, matters that are given concession (rukhsah) based on necessity should be assessed and addressed proportionately to their needs. And the concession ceases when the needs are over.
For example, this money can be used to cover hospital bills or future treatment and foreseeable future income disruptions to the family during the heart attack treatment.
Whereas whether zakat is due during a lump sum payout stage depends on the saving and investment components of the insurance structure. We assume your insurance payout was from a critical illness plan which has neither savings nor investment components to it. For this type of insurance, there is no zakat payable upon receiving
the payout.
However, for the post-insurance payout stage, the proceeds which have been residing in your savings account falls under zakat on savings and are payable if it is above nisab and has reached the haul period. (You may visit the MUIS website to assist with your zakat calculation).
Lastly, our usual advice for ourselves and others is to act on this type of matter with caution and based on respective necessities so as to preserve Allah’s pleasure (redha) on us. In return for the pure intention of striving for the lawful and Allah’s pleasure, our affairs are eased and 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
