Do life insurance proceeds enter the estate?

The payout is estate for all the heirs; naming one of them does not change that. Answering a son who had been made the sole beneficiary of his father’s policy (fatwa 154109, 11 April 2011), the Centre held that everything the father left by way of financial entitlements is tarikah for all his heirs. A bequest to an heir fails unless the other heirs allow it, and a gift conditional on death takes the ruling of a bequest — so the designation on the policy form does not by itself take the money out of the estate. If the policy was commercial, the Centre draws the practical consequence: withdraw the sums the deceased actually subscribed and divide those among all the heirs, while “what remains beyond what the father paid in must be disposed of, by spending it on the interests of the Muslims and giving it to the poor and needy, because it is unlawful wealth”. Where the policy was a genuine cooperative or takaful arrangement it says there is no objection to it, and the whole sum is divided among the heirs by their lawful shares.

Source: Islamweb Fatwa Centre, fatwa 154109, “Hukm intifa‘ al-waratha bi-bulisati al-ta’min ‘ala al-hayat”, 8 Jumada al-Ula 1432 / 11 April 2011 — a son named sole beneficiary of his late father’s life policy. Held: everything the father left is tarikah for all his heirs; a bequest to an heir is void unless the heirs allow it, and a gift contingent on death takes the ruling of a bequest; if the policy was commercial, “fa-yajibu sahbu al-amwali allati ishtaraka biha muwarrithukum wa-taqsimuha ‘ala jami‘i al-waratha”, and “al-baqi ba‘da qadri ma ishtaraka bihi al-abu yajibu al-takhallusu minhu bi-sarfihi fi masalihi al-muslimina wa-daf‘ihi ila al-fuqara’i wa’l-masakini li-kawnihi malan haraman”; if it was a cooperative/takaful policy there is no objection and it is divided among all the heirs by their lawful shares (Islamweb Fatwa Centre (Qatar)).

A named beneficiary takes in his own right — but with no designation, the shares apply. Fatwa 8359 (5 May 2024): where the insured named beneficiaries without fixing their portions the sum is paid to them equally, “no difference whether the beneficiary is male or female, a child or an adult, an heir or not an heir”; where he named them as his lawful heirs, it is paid in the proportions of their inheritance shares. The entitlement is grounded in stipulation for the benefit of a third party, which gives the beneficiary a direct claim against the insurer. And where no beneficiary was designated at all, the matter goes to the insurer’s own regulations and, failing those, “the distribution is by the lawful division among the heirs of the insured” — which is where this body and Islamweb meet.

Source: Egyptian Dar al-Ifta, fatwa 8359, “Kayfiyyat tawzi‘ mablagh al-ta’min ‘ala al-hayat fi halat tahdid al-mustafidin aw ‘adam tahdidihim”, 5 May 2024, over the signature of Prof. Shawqi Ibrahim ‘Allam — where the insured named beneficiaries without fixing their shares the sum is paid to them equally, “la farqa fi dhalika bayna kawni al-mustafidi dhakaran aw untha, saghiran aw kabiran, warithan aw ghayra warith”; where he named them as his lawful heirs it is paid in the proportions of their inheritance shares; and where no beneficiary was designated at all the matter reverts to the insurer’s regulations, failing which “yakunu al-tawzi‘u bi’l-qismati al-shar‘iyyati ‘ala warathati al-mu’amman lahu ba‘da wafatih”. The fatwa grounds the beneficiary’s entitlement in stipulation for the benefit of a third party (Egyptian Civil Code art. 154), which gives the beneficiary “haqqan mubasharan qibala al-mu’ammin” (Dar al-Ifta al-Misriyyah).

The excess over the premiums is the riba. The Mecca resolution of 1398 AH gives as its third ground for prohibiting commercial insurance that the company pays the insured “or his heirs, or the beneficiary, more than he paid it” — riba al-fadl and riba al-nasa’ together. The reason this matters after a death is arithmetic: on this analysis the premiums the deceased actually paid and the sum the insurer hands over are two different things, and only the first was ever his.

Source: Majma‘ al-Fiqh al-Islami of the Muslim World League, 1st session, Mecca, 10 Sha‘ban 1398 — resolution prohibiting commercial insurance of every kind, taken “bi’l-ijma‘i ‘ada fadilati al-shaykh Mustafa al-Zarqa”, on six named grounds (gharar fahish; a species of gambling within the prohibition of maysir at Q 5:90; riba al-fadl and riba al-nasa’ where the company pays the insured “aw li-warathatihi aw li’l-mustafid akthara mimma dafa‘ahu”; prohibited wagering; taking another’s property without counter-value; and binding a person to what the Shari‘a does not bind him to). Also records the Saudi Board of Senior Scholars, 10th session, Riyadh 4/4/1397, res. 55. Reproduced in full by the Islamweb Fatwa Centre, fatwa 7394 (Islamweb Fatwa Centre (Qatar), reproducing the MWL Academy text).

Same line, stated in English for North America. Life insurance is not permitted, because the beneficiary receives “money much more than what he paid in premiums” — the same premiums-versus-excess distinction, reached independently, by the body that answers for Muslims on this continent.

Source: AMJA fatwa 23045, “Life Insurance Or Other Types Of Insurance” (Dr. Main Khalid Al-Qudah, 23 May 2008) — commercial insurance is prohibited for “ambiguity, uncertainty, and usury”; life insurance “is not permitted at all”, the beneficiary receiving much more than was paid in premiums; narrow necessity exceptions named for US health cover and legally-required liability motor cover (Assembly of Muslim Jurists of America).