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Question:

 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 Fatwa

In the Name of Allah, the Most Gracious, the Most Merciful

The Answer 

It is not permissible to invest in a life insurance index fund.

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 Almighty Allah Alone Knows Best

Maulana Ammar Y Badat
Trainee Mufti

 Reviewed and approved by
Mufti Faraz Adam
Darul Iftaa Muadh ibn Jabal
www.fatwa-centre.com | www.darulfiqh.com

 

DISCLAIMER:

The views and opinions expressed in this answer belong only to the author and do not in any way represent or reflect the views of any institutions to which he may be affiliated.

Arguments and ideas propounded in this answer are based on the juristic interpretations and reasoning of the author. Given that contemporary issues and interpretations of contemporary issues are subjective in nature, another Mufti may reach different conclusions to the one expressed by the author. Whilst every effort has been taken to ensure total accuracy and soundness from a Shari’ah perspective, the author is open to any correction or juristic guidance. On the event of any juristic shortcomings, the author will retract any or all of the conclusions expressed within this answer.

The Shari’ah ruling given herein is based specifically on the scenario in question.  The author bears no responsibility towards any party that acts or does not act on this answer and is exempted from any and all forms of loss or damage.  This answer may not be used as evidence in any court of law without prior written consent from the author.  Consideration is only given and is restricted to the specific links provided, the author does not endorse nor approve of any other content the website may contain.

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