A person in our community wants to donate his life insurance policy to be used for some good cause (Islamic School, or feeding the homeless centre, or making a playground for kids). Can we use the money for any Islamic Cause?
In the name of Allah, Most Compassionate, Most Merciful,
As mentioned previously, all prevalent forms of commercial insurance are unlawful and sinful; hence they must be avoided, unless one is forced by the law of the country. As such, it would not be permitted for one to have a life insurance policy.
However, despite the impermissibility of insurance policies, if one did take up a life insurance policy, then it would be permitted to avail of only the amount paid as premiums to the insurance company. Any excess amount would be a combination of interest (riba) and gambling money, hence impure and unlawful.
The ruling with regards to impure money has been explained earlier, in that all of it should be given away to the poor without the intention of gaining a reward, rather, merely removing the burden of having unlawful money in one’s ownership.
Therefore, the individual in question should really try and terminate the life insurance policy as soon as possible, for it is unlawful. It will not be permitted to have the policy even with the intention of using the money for some good cause. It will be permitted for them to avail of the premiums paid, and anything extra should be given away to the poor without the intention of reward.
And Allah knows best
[Mufti] Muhammad ibn Adam
Leicester , UK