Saturday, 9 December 2006

Life Insurance & Mutuals

Any form of life insurance is Haraam.

Mutual companies are owned by policy holders and all reserves are built up through retained profits. However, such profits primarily arise from income generated through Haraam
investments such as interest on government stock, interest on fixed deposit, investments, investments on Brewery companies, etc.

Accordingly such accumulated profits are from Haraam sources. On demutualisation, these accumulated profits are utilised to issue free shares to policy holders in proportion to their equitable shares. Therefore, such shares received are Haraam and the proceeds on sales are Haraam. To dispose this Haraam income, the proceeds should be given away as charity to the poor and needy without the intention of reward.

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