What is Shariah Compliant Life Insurance in Canada?
Talk with an advisor, today!
8 minute read
Originally published: December 23, 2022
What is Shariah Compliant Life Insurance in Canada?
Talk with an advisor, today!
8 minute read
Originally published: December 23, 2022
Shariah compliant life insurance, also known as Takaful insurance or Islamic insurance, is a type of insurance that is designed to be compliant with Islamic principles that prohibit the charging of interest and the speculation on risk. And you may ask, ‘what is shariah compliant life insurance?’ in which this blog will talk about: explaining what Takaful life insurance is, as well as its key highlights and differences compared to traditional (regular) life insurance. As a disclaimer we want to add that Takaful insurance can be found based on certain interpretations of what is Shariah compliant. We emphasized that there is no 100% confirmed compliant life insurance policy, but here is what certain interpretations express.
In this Article:
What is Shariah Compliant Life Insurance
Shariah-compliant life insurance, also known as Islamic life insurance or takaful, is a type of life insurance that is designed to be compliant with the principles of Islamic law, or Shariah. These principles include the prohibition of interest and the requirement that financial transactions be based on mutual cooperation and shared risk. Takaful policies cover health, life, and general insurance needs.
In a takaful insurance policy, the insurer and the insured share the risk of loss, rather than the insurer assuming all of the risk and charging the insured a fee (in the form of a premium) for taking on that risk. This means that the premiums paid by policyholders are used to cover the cost of insurance claims and other expenses, rather than being invested in interest-bearing assets.
In addition to following these principles, Shariah-compliant life insurance policies often have additional features, such as providing financial assistance to policyholders in need and investing in socially responsible and ethical investments.
Shariah Compliant vs. Traditional Life Insurance
Takaful life insurance, also known as Islamic insurance or Shariah-compliant insurance, is a type of insurance that is designed to be compliant with Islamic principles. Traditional life insurance, on the other hand, is a type of insurance that is not specifically designed to be compliant with any particular religious principles.
One key difference between Takaful life insurance and traditional life insurance is the way in which risks are managed and shared. In traditional insurance, the insurer assumes the risk and charges premiums based on the likelihood of a claim being made. In Takaful insurance, the risks are shared among the policyholders, and premiums are used to fund a pool of money from which claims are paid. Any surplus remaining in the pool is typically shared among the policyholders. Also in traditional insurance, the insurer aims to maximize profits for shareholders. While in Takaful insurance, profits are typically shared among the policyholders.
With this being said, depending upon interpretation of the Shariah principles, term life insurance adheres to Takaful insurance. According to Islamic principles, Takaful insurance should not involve guaranteed returns. This is because Term insurance policies, which have a set time period and may or may not pay out in the event of the policyholder’s death, are considered compliant under Islamic law, as the chance of a payout is not guaranteed. In contrast, Permanent insurance policies such as universal life and whole life insurance, which provide coverage for the entire lifetime of the policyholder and guarantee a payout upon their death, would not be considered Shariah compliant. This is because Term policies align with the idea of shared responsibility and mutual cooperation among policyholders, as in the event of a payout, the compensation would be provided by all the policyholders, rather than a guaranteed return provided by the insurer.
There may also be differences in the types of coverage and exclusions offered by Takaful and traditional insurance policies. It is important to carefully review the terms and conditions of any insurance policy you are considering before making a decision.
Takaful (Shariah Compliant) Insurance in Canada
Takaful insurance is not widely available in Canada. As a general insurance and financial products regulated by the provinces and territories, not all provinces offer Takaful insurance and the offering will depend on the insurance company , However, some insurance companies in Canada do offer insurance products that are compliant with Islamic law. It might be hard to find an insurance company that specifically writes Takaful insurance policies in Canada and you might want to look into alternative insurance products that are compliant with Islamic laws like co-operative insurance or community-based insurance. Luckily, there is a possible option that you might have if you want Takaful insurance.
When it comes to finding a Takaful or Shariah-compliant insurance policy, it is important to consider the type of company offering the policy. Foresters Financial is one such company that operates in multiple countries, including Canada, the United Kingdom, and the United States. They even have a Managed Islamic Fund as one of their investment options in UK.
In Canada, Foresters Financial is a fraternal benefit society in Canada, which means it is limited in its operations and focused on serving its existing policies and giving back to the community.
Additionally, Foresters Financial’s Term policies automatically pay out 1% of the death benefit to a charity of your choice, and offer the option to increase this to 2.5% or higher, which aligns with the Islamic principles of Zakat.
Based on this information, it can be inferred that the closest Shariah-compliant Life Insurance policy would be a Term Policy from Foresters Financial which would align with Islamic principle and also serve the good of the community.
Pros and Cons on Shariah Compliant Life Insurance
There are both pros and cons to consider when deciding whether to purchase a Takaful (Shariah-compliant) life insurance policy in Canada.
Some potential advantages of Takaful life insurance include:
- Compliance with Islamic principles: Takaful insurance is designed to be compliant with Islamic principles, which prohibit the charging of interest and the speculation on risk. This can be appealing to Muslims who wish to conduct their financial affairs in accordance with their religious beliefs.
- Charitable component: As mentioned earlier life insurance can be utilized for Zakat, for example Foresters Financial will send 1% of the death benefit to charity automatically, but this can be increased to 2.5% or even higher.
- Socially responsible investing: Takaful insurance may be appealing to those who are interested in socially responsible investing, as it is based on principles of mutual cooperation and shared responsibility rather than traditional profit-maximization.
There are also some potential disadvantages to consider when deciding whether to purchase a Takaful life insurance policy in Canada:
- Limited availability: Takaful insurance is not widely available in Canada, and there are fewer options to choose from compared to traditional insurance products.
- Potential for exclusions or restrictions: Takaful insurance policies may have certain exclusions or restrictions that may not be present in traditional insurance policies.
Ultimately, whether a takaful life insurance policy is the right choice for you will depend on your individual circumstances and financial needs. It is important to carefully consider the pros and cons and consult with a financial advisor or insurance broker before making a decision.
Frequently Asked Questions (FAQs) about about Shariah Compliant Life Insurance
Yes, it is possible to obtain Shariah-compliant life insurance in Canada, but there are limited options.
The availability and specifics of these policies varies depending on the insurer and the specific policy. If you are interested in purchasing a Shariah-compliant life insurance policy in Canada, it is a good idea to contact our life insurance brokers. The closest Takaful life insurance policy that is available in Canada is Foresters Financial’s term life insurance policy. This is because Foresters is an organization which is focused on serving its existing policies and giving back to the community. Foresters Financial’s Term policies automatically pay out 1% of the death benefit to a charity of your choice, and offer the option to increase this to 2.5% or higher, which aligns with the Islamic principles of Zakat.
It is important to note that Shariah-compliant life insurance policies are not the same as traditional life insurance policies, and they may have different features and benefits. If you are in the market for a life insurance policy, contact us today to help you find a policy to give you and your family the best benefits and protection available.
No, it is not necessarily more expensive. It is just a term life insurance policy at the end of the day, and term life insurance policies are the cheapest and best life insurance policies that are available in Canada. However, it is important to note that the cost of life insurance can vary widely depending on a number of factors, such as the type and amount of coverage you need, your age, your health, and your lifestyle. It is not possible to make a general statement about whether takaful insurance is more or less expensive than traditional insurance without considering these factors.
In Canada, life insurance premiums are generally not tax-deductible for individuals. This means that you cannot claim a tax deduction for premiums paid on a takaful (Shariah-compliant) life insurance policy.
However, there are some exceptions to this rule. For example, if you are self-employed and you purchase a life insurance policy to cover the financial loss that would result from your death, you may be able to claim a tax deduction for the premiums paid on the policy. In this case, the premiums would be considered a business expense.
It is important to note that the tax treatment of life insurance premiums can vary depending on the specific circumstances. If you have questions about the tax treatment of your takaful life insurance premiums, it is recommended that you consult a tax professional or refer to the Canada Revenue Agency’s website for more information.
Takaful (Shariah-compliant) insurance is considered to be halal (permissible) according to Islamic principles. Takaful insurance is designed to be compliant with Islamic principles, which prohibit the charging of interest and the speculation on risk. It is intended to provide a way for Muslims to conduct their financial affairs in accordance with their religious beliefs.
It is important to note that takaful insurance is not the only type of insurance that is considered to be halal. Some traditional insurance policies may also be considered halal if they do not involve activities that are prohibited by Islamic law, such as gambling or the charging of interest. However, it is important to carefully review the terms and conditions of any insurance policy to ensure that it is consistent with your religious beliefs.
Is Shariah Compliant Life Insurance For You?
Whether Shariah-compliant (takaful) life insurance is right for you will depend on your individual circumstances and financial needs, as well as your personal values and beliefs. If you are a Muslim who wishes to conduct your financial affairs in accordance with Islamic principles, takaful insurance may be an appealing option. However, it is important to carefully consider the terms and conditions of any insurance policy. Takaful insurance may have certain exclusions or restrictions that may not be present in traditional insurance policies, and premiums for takaful insurance may be higher to cover the cost of the profit-sharing component.
It is also important to consider your overall financial goals and needs when deciding whether takaful insurance is right for you. For example, if you are primarily concerned with protecting your loved ones in the event of your death, you may want to consider a life insurance policy that offers the most comprehensive coverage at the most affordable price, regardless of whether it is takaful or traditional.
To make an informed decision, consult with an experienced insurance brokerage like Protect Your Wealth to find the best life insurance policies for the best price. By working with Protect Your Wealth you can carefully compare the terms and conditions of different insurance policies – allowing you to choose the policy that best meets you and your families needs as well as being consistent with your personal values and beliefs.
Contact us today or call us at 1-877-654-6119 to talk with a licensed professional on the best life insurance options for your personal needs. We’re proudly based out of Hamilton, and service clients anywhere in Alberta, Ontario and British Columbia (B.C.), including areas such as Windsor, Coquitlam, Kamloops, and Red Deer.
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