Answer
(Fatwa: 334/306=D/1430)
Interest is haram in any case whether received from life insurance or post office saving. Life insurance contains gambling along with interest, both have been regarded haram by the Quran. As far as life insurance to save income tax is concerned, if you lose so much wealth in income tax and can save it by little amount of life insurance, then it is allowable to adopt the less harmful to avoid the more harmful. But, you should do istighfar that Allah may forgive this sin to which you are forced by situation. However, the additional amount will not be lawful to use, you will have to give it in charity without an intention of reward.
(2) The additional amount received with the fund which is compulsorily deducted from salary is not interest, therefore receiving and using the amount is lawful. But, if the fund is deducted with oneÂ’s choice, then the additional amount will be interest and it must be given in charity.
Allah (Subhana Wa Ta’ala) knows Best
Darul Ifta,
Darul Uloom Deoband