For most of us elsewhere in the world, getting a life insurance, or a medical insurance at least is a necessity. A must.
I am bringing up the topic about life insurance because a Filipino in Saudi Arabia died in an accident while at work a couple of days go. And then I wondered whether he is covered by any type of life insurance provided by the company or the Saudi government.
It turned out that his family will be receiving a social insurance benefit worth around SAR300,000 or roughly Php3,300,000 from GOSI (General Organization for Social Insurance) without him even contributing a single halala (peso) when he was still alive. The Company pays for the contribution of all its expatriate employees. So basically, expatriates in Saudi Arabia are generally protected as long as their companies are complying with their government’s Shar’a requirements related to GOSI.
In addition to that, I have learned that the employee’s company medical insurance has a “silent” life insurance coverage and that his family will be receiving an estimated amount of SAR250,000 or roughly Php2,750,000.
Do you know why the life insurance coverage is “silent” or is never even mentioned in the policy? Because in Islam, most of the clerics consider certain types of insurance as forbidden or “haram”.
Is Insurance “Haram” (Forbidden)?
Is it really forbidden? Well, not entirely. According to Muslim Access,
“In the circles of contemporary Shari’ah scholars, there are three opinions about life insurance. They all recognize that it is a new contract not known in the history of Fiqh (Islamic jurisprudence). First, a minority consider it haram and with all kinds of argument against it including Riba (interest), gambling, gharar (risk) and speculation on the will of Allah. This view does not carry much weight.”
The second view is that it contains gharar because no one knows whether the liability of the insurer (the company) will ever materialize nor when it will , if ever. This is a serious gharar that leads to a major defect in the contract. It is therefore forbidden.
The third opinion is presented by the late Sheikh Mustafa al Zarka. He argued that the gharar in the contract is remedied by the fact that it is a contract based on overwhelming statistical knowledge and the application of the theory of probability. With this in mind, there is no gharar on the part of the insurer and the contract is permissible with two conditions: that it contains no Riba clause and that its subject (insured thing) be legitimate. These two conditions rule out regular fixed return life insurance because the value of the policy is the outcome of investment premiums at a compounded rate of interest, (while variable – return life is permissible if the funds are invested in the Shari’ah approved stocks or mutual funds). They also rule out insuring a prohibited activity such as casinos.”
Therefore, based on these clerics’ views, buying a VUL or a variable universal life insurance that builds a cash value and are invested in various financial instruments is considered haram.
But a term life insurance is halal (permissible).
Watch this video from Islamic scholar Assim Alhakeem to further understand their views about medical and life insurance as Muslims.
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P.S. 1. The Angat Pilipinas Coalition for Financial Literacy and OFW UsapangPiso Forum will be conducting its first ever PAID webinar in 2013 entitled “Multiplying Wealth – A Comprehensive Webinar on Investing” on March 22, 2013 (both Fridays) at 9pm (Philippine time). The webinar will feature my fellow blogger and personal finance advocate Fitz Villafuerte and he will discuss about investment preparation requirements for beginners, analysis for spotting good investments, types of investments that will make you a millionaire, investment portfolio creation and management, and an easy and simple strategy that will help you retire rich. And by the way, the webinar is also open to non-OFW’s. Register here now!
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P.S. 3. The OFW UsapangPiso KSA Chapter will be conducting a series of financial literacy seminars to OFW’s in the Eastern Province and in Bahrain starting on May 23, 2014 (Al Ahsa), May 30 (International Philippine School of Al Khobar or IPSA), and June 20 (JCSGO Manama, Bahrain). Keep on visiting our Facebook group and forum site for updates on these events.
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Photo credit: Lou Ect