Answered by Shaykh Faraz A. Khan
Insurance itself is haram, but can you please explain a situation like this: Let’s say someone pays 100 pounds a month towards life insurance. At the end of one year – that will equal 1200 pounds total paid. If the person would like to stop payments, he would have to pay a fine of 300 pounds. So he continues paying until the end of the year, when the insurance time expires, he gets 1000 pounds back, because of the loss in investments that the insurance company made during the period (loss of 200 pounds). There is no interest paid.
The question – Is this money that the person received haram or halal? Can it be used for Islamic purpose (sadaqa, building of the mosque, going to hajj, etc?)
Answer: Assalamu alaikum wa rahmatullah,
I pray this finds you in the best of health and states.
One is entitled to receive the premiums they paid, so the money is halal and can be used for personal benefit or any charity. The money received in this scenario is not considered riba, even though it is less than what was paid, since that difference was not contractually stipulated.
And Allah knows best.
Checked & Approved by Faraz Rabbani