Is a Zero-Interest Loan With Mandatory Life Insurance Permissible?

Answered by Mawlana Ilyas Patel

Question

Is it permissible to use a zero-interest government loan that includes a mandatory life insurance policy, or should I avoid using the funds and only pay the required fees?

Answer

In the Name of Allah, the Most Merciful and Compassionate.

I pray you are in good faith and health. Thank you for your question.

It is permissible to use the interest-free loan offer provided that the life insurance policy is not utilized in any situation. In the event, one only takes the premiums they paid. The policy can be considered an unavoidable condition rather than a voluntary engagement.

Muslim jurists are unanimous that most prevailing classes of insurance are not permissible under Islamic Law. In the case of such insurance, the insured is entitled only to the premiums he paid over the period of insurance. The surplus will be given to charity without any reward in return. [Usmani, Fiqh al-Buyu]

Please go through the valuable answers and links below. Insha’Allah, they will provide you with guidance and direction.

Related: Life Insurance

Why not begin your search for knowledge by signing up for a course on SeekersGuidance? You can choose from the Islamic Studies Curriculum or the Youth Islamic Studies Curriculum and progress through each course step by step.

I pray this helps with your question.
Wassalam,
[Mawlana] Ilyas Patel
Checked and Approved by Shaykh Faraz Rabbani

Mawlana Ilyas Patel has received a traditional education in various countries. He started his schooling in the UK and completed his hifz of the Quran in India. After that, he joined an Islamic seminary in the UK, where he studied secular and Aalimiyya sciences. Later, he traveled to Karachi, Pakistan, and other Middle Eastern countries to further his education. Mawlana has served as an Imam in the Republic of Ireland for several years and taught the Quran and other Islamic sciences to both children and adults. He also worked as a teacher and librarian at a local Islamic seminary in the UK for 12 years. Presently, he lives in the UK with his wife and is interested in books and gardening.