Is there Zakat on Aviva Life Insurance Plan?
The answer
Zakat is not binding on the premiums paid to the policy. More importantly, life insurance policies are prohibited. Entering into such contracts without any legal requirement or necessity is prohibited and sinful.
In short: no Zakat on the premiums; life insurance itself is prohibited.
Fiqh basis
An insurance contract is a bilateral contract whereby the insurer promises and undertakes, in exchange for consideration called premiums to make a payment to either the insured or a third party if a specified event occurs1.
Insurance contracts contains elements of interest (Riba), gross uncertainty (Gharar) and gambling (Maysir). Thus, an insurance contract is an irregular and voidable (fāsid) contract in Shariah.
A voidable (Fāsid) contract results in the transfer of ownership of the counter values upon possession. Thus, a policy holder loses ownership of the premiums. Therefore. Zakat is not binding on the premiums.
Additionally, one should rescind and cancel such a policy as soon as possible to free themselves of being involved in contract of interest, gambling and gross uncertainty.
We encourage Insurance firms to consider setting up Shariah compliant windows for Takaful products as an alternative to Insurance for Muslims.
And Allah knows best.
Mufti Faraz Adam
References
1http://ec.europa.eu/justice/contract/files/expert_groups/definition_of_insurance_contract_en.pdf
Based on the Hanafi school and on the question as it was asked. Another mufti may reach a different conclusion. Read the disclaimer.