Investing in Life Insurance Funds
The question, as received
Asalamualikum, I had a question for you. Is investing in life insurance index funds that earn a certain percentage return allowed in Islam? I wasn’t sure if it was Sharia compliant or not so I wanted to ask you about it first before I invested. JazakAllah khair for your help!
Question Published as received.
The answer
It is not permissible to invest in a life insurance index fund.
Explanation
A life insurance index fund is a type of investment vehicle that combines the features of a life insurance policy with those of an index fund.
An index tracks the performance of the specific basket of investments, such as stocks or bonds. An index fund is a type of mutual fund or exchange-traded fund that aims to track the performance of a specific market index, such as the S&P 500. A life insurance index fund, therefore, is a type of investment that allows individuals to invest in an indexed market while also providing a death benefit to their beneficiaries. The investment return is linked to the performance of the underlying index, while the death benefit is provided by the life insurance component of the product.
Index funds can only be acceptable when the vehicle used to track itself is Sharia compliant. This will be involve the underlying assets of the fund being Sharia compliant as well as the fund structure, policies and facilities. Further, the index which is being tracked should be Sharia compliant too.
Life insurance funds work on principles which are inherently composed of Riba (interest) and Gharar (excessive uncertainty).
And Allah knows best.
Maulana Ammar Y Badat
Reviewed and approved by Mufti Faraz Adam
Based on the Hanafi school and on the question as it was asked. Another mufti may reach a different conclusion. Read the disclaimer.