I have an endowment policy that I put money into. The aim is that the money will grow through being invested on the Stock Market. The final value of the saving is not guaranteed and indeed I could get back less than I have put in. If, however, once the endowment matures, I get back more than I have saved is the excess amount usury? If so shall I stop putting money into it now even though in this case I would mostly likely get back less than I have so far put in because I am stopping the policy early?
ANSWER
In the name of Allah, Most Compassionate, Most Merciful,
Endowment policies cover the risk for a specified period at the end of which the sum assured is paid back to the policyholder along with the entire bonus accumulated during the term of the policy. It is this feature – the payment of the endowment to the policyholder upon the completion of the policy’s term – which rightly accounts for the popularity of endowment policies.
As compared to whole life policies, the premium rates for endowment policies are higher and the bonus rates lower.
Endowment policies and life insurances are impermissible in Islam. This has been agreed upon by the major contemporary scholars from around the globe.
There are two reasons for this. Firstly, interest, as the policyholder receives an excess amount on the original payment. Secondly, there is an element of what is known in the Fiqh terminology as ‘gharar’ (deceptive uncertainty or chancing).
Sayyiduna Abu Huraira (Allah be pleased with him) reports that the Messenger of Allah (Allah bless him & give him peace) “forbade deceptively uncertain (gharar) transactions.” (Sunan Tirmidhi)
The term ‘gharar’ (deceptive uncertainty) refers to a transaction where any one of the price, commodity or the period is indefinite, or the transaction is linked to an uncertain event. (See: Majallah al-Ahkam al-Adliyyah)
In life insurance policies, one is uncertain as to how much will be received in return. It is possible that the endowment is paid back or a very high amount of bonus/interest may be gained.
For these reasons, all types of insurances have been declared unlawful.
Therefore, in your situation, the excess amount you receive is usury (interest) and must not be used for personal benefit; rather it should be disposed off by giving it to the poor (as mentioned in many earlier posts).
Secondly, you should stop the policy as quick as possible, as to abstain from unlawful transactions is necessary.
And Allah Knows Best
[Mufti] Muhammad ibn Adam
Darul Iftaa
Leicester , UK