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In the USA the government charges around 50% estate or probate taxes, when your wealth is to be distributed to your family. To offset this, the financial advisors recommend a life insurance policy.

Answered as per Hanafi Fiqh by Askimam.org

So, you are not directly using the money from the policy, but using it to pay the huge tax levied by the government. Suppose you have worked all your life and have amassed assets, including a house, etc, worth a million dollars, when you pass away, the government claims 50% and the rest gets distributed according to the will.

Answer

You did not elaborate on how the insurance policy will offset the taxes.

However, we do understand the difficulty of losing 50% of one’s assets to
the government due to taxes. The general proposed mechanism of taking out a
life insurance policy to offset the taxes has a potential of opening the
doors of interest and therefore not permissible. If the proposed mechanism
is not general but specific, kindly elaborate and we will then reconsider
the ruling.

and Allah Ta’ala Knows Best

Mufti Ebrahim Desai

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This answer was collected from Askimam.org, which is operated under the supervision of Mufti Ebrahim Desai from South Africa.

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