Islamic Finance Q&A

Key Man Insurance Policy/Buy and Sell Insurance Policy

 

 

Question:

Is the following insurance  Ja’iz?

1.Key man policy

2. Insurance for business , whereby is there are three shareholders if one dies this product will pay out the family of the deceased the value of his share of the business.

 


Answer:

In the Name of Allah, the Most Gracious, the Most Merciful.

As-salāmu ‘alaykumwa-rahmatullāhiwa-barakātuh.

 

A Key Man is defined as:

“A key person is someone who is fundamental to the running of the business, who through their knowledge, skill or expertise, contributes to the profitability of the business.”

(http://www.liberty.co.za/our-products/business-solutions/pages/business-assurance/key-person-insurance.aspx

 

A Key Man insurance policy is defined as:

“A life insurance policy that a company purchases on a key executive's life. The company is the beneficiary of the plan and pays the insurance policy premiums.”

(http://www.investopedia.com/terms/k/keypersoninsurance.asp)

 

How Key Man insurance policy works:

 

“A company purchases a life insurance policy on its key employee(s), pays the premiums and is the beneficiary of the policy. If that person unexpectedly dies, the company receives the insurance payoff. The reason this coverage is important is because the death of a key person in a small company can cause the immediate death of that company. The purpose of key person insurance is to help the company survive the blow of losing the person who makes the business work.”

(http://www.entrepreneur.com/encyclopedia/key-person-insurance)

The second policy is defined as a ‘Buy and Sell insurance policy’.

 

Buy and Sell insurance policy is defined as:

 

“A buy and sell agreement is for example where there is a partnership and the partners enter into an agreement which determines that upon the death of one of the partners, the remaining partners can buy out the share of the deceased partner.  This type of agreement can also be entered into between directors of companies or members of Close Corporations.  This buy and sell agreement will normally be backed by a buy and sell policy, which will mean that the proceeds of the policy will be used to buy out the deceased partner’s/director’s/member’s interest in the business.  The policy must have been taken out for the purpose to buy out the interest of the deceased person, or a part of the interest, otherwise the policy will not be exempt from deemed property and will be included in the estate of the deceased person.”

(https://www.findanadvisor.co.za/content_buy-and-sell-agreement)

 

“In order to ensure the availability of funds in the event of a partner's death, most parties will purchase life insurance policies on the other partners. In the event of a death, the proceeds from the life insurance policy are used to purchase a portion of the deceased's business interest.”
(http://www.investopedia.com/terms/b/buy-and-sell-agreement.asp)

“When using life insurance with a buy-sell agreement, either the company or the individual co-owners buy life insurance policies on the lives of each co-owner (but not on themselves). If you were to die, the policyowners (the company or co-owners) receive the death benefits from the policies on your life. That money is paid to your surviving family members as payment for your interest in the business. If all goes well, your family gets a sum of cash they can use to help sustain them after your death, and the company has ensured its continuity.”

(https://us.axa.com/life-insurance/funding-with-life-insurance.html

 

It is clear from the above that both, Key Man Policy insurance and Buy and Sell insurance are not permissible. They are conventional insurance schemes that have within them elements of interest, gambling and contract of uncertainty, all of which are prohibited in Shari’ah.

 

You may see the following link for our research on the issue of insurance:

 

http://www.askimam.org/public/question_detail/34288

 

 

And Allah Ta’āla Knows Best

Maaz Chati

Student DarulIftaa
Blackburn, England, UK

Checked and Approved by,
Mufti Ebrahim Desai.

Question:

I was just wondering if it is permissible to sell pounds and euros in exchange for dollars. We sell at higher than market values if that’s permissible.

 

Answer:

In the Name of Allah, the Most Gracious, the Most Merciful.

As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.

 

It is permissible to sell one currency in exchange for another whether it is according to the market value or not.[1] However, if the payment is deferred on either side, it must be in accordance with the market rate.[2]

 

And Allah Ta’āla Knows Best

Saleem Ibn Sajawal Khan

Bradford, UK

Student Darul Iftaa

Checked and Approved by,
Mufti Ebrahim Desai.



[1]

 فتبين أن عملات الدول المختلفة أجناس مختلفة ، ولذلك تختلف أسماؤها ، وموازينها ، ووحداتها المنشعبة منها. ولما كانت عملات الدول أجناسا مختلفا جاز بيعها بالتفاضل بالإجماع... فيجوز إذن أن يباع الريال السعودي مثلا بعدد أكثر من الروبيات الباكيستاني. ثم إن أسعار هذه العملات بالنسبة إلي العملات الاخرى ربما تعين من قبل الحكومات. فهل يجوز بيعها بأقل أو أكثر من ذلك السعر المحدد؟ والجواب عندي أن البيع بخلاف هذا السعر الرسمي لا يعتبر ربا ، لما قدمنا من أنها أجناس مختلفة ، ولا خلاف في جواز التفاضل عند اختلاف الجنسين ، وليس للفضل الجائز حد مقدر شرعا ، وإنما هو يتبع رضاء العاقدين.

 

{بحوث في قضايا فقهية معاصرة ج ١ ص ١٦٥  مكتبة دار العلوم كراتشي}

 

[2] Contemporary Fatawaa, pg. 141, Idara.

Question:

We have at present substantial moneys sitting in the current account of the business.

We have made some investments in the Al Mabroor property and buffalo projects.

We do still have a large amount sitting in the current account which we do not know when we will use.

We want to invest these funds on call for maybe 30/60/90 day notice.

Would it be permissible to invest these in the so called Shariah compliant funds on call?

We do not intend using the profits earned for personal use but to pay taxes or give away in charity.

Do you know of any other avenue in which these funds can be invested in a halaal manner?

 

Answer:

In the Name of Allah, the Most Gracious, the Most Merciful.

As-salamu ‘alaykum wa-rahmatullahi wa-barakatuh.

The investment fund scheme that you are referring to is commonly known as term deposits or time deposits. A time deposit is an interest-bearing deposit held by a bank or financial institution for a fixed term whereby the depositor can only withdraw the funds after giving notice.[1]

The opposite, sometimes known as a sight deposit or "on call" deposit, can be withdrawn at any time, without any notice or penalty.[2]

Time deposits and sight deposits (on call) are interest based investment schemes and thus, are not Shariah compliant.

It is also important to note that the contracts that represent the various modes of Islamic finance must be Shariah Compliant as well. They should not be Islamic modes of financing by name while they lack the true essence of the concept in the contract and in the implementation.

 

Musharakah and Mudarabah are ideal avenues for investment which you may consider in investing your wealth.

 

And Allah Ta’ala Knows Best

 

Ismaeel Bassa

Student Darul Iftaa

Durban South Africa

 

Checked and Approved by,
Mufti Ebrahim Desai.

www.daruliftaa.net

 

 

 

Question:

I want to buy a car using Murabaha from an Islamic bank. Bank will buy the car from my friend (original owner) and pay him the price. The car will be under my ownership and my instalments with bank will be for 2 years. Can I sell the car after few days (may be for more or less price) in open market to get cash (not to previous owner)? My instalment with bank will continue as it is and i will keep on paying the instalments on time. Basically I want to have cash using real product in my ownership. Please advise if this is Halal considering that bank meets Murabaha as per Shariah.

 

Answer:

In the Name of Allah, the Most Gracious, the Most Merciful.

As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.

 

In principle, once you purchased a car on credit, you are the owner of the car. You are at liberty to sell the car and continue the instalments with your creditor. However, the real issue is would the Bank permit to sell the car and is the car and or its logbook (legal documents) placed as a collateral for the credit instalments?

 

And Allah Ta’āla Knows Best

Arshad Ali

Student Darul Iftaa
Trinidad

Checked and Approved by,
Mufti Ebrahim Desai.

http://www.daruliftaa.net/

 

بدائع الصنائع (5/ 180)

وَمِنْهَا الْقَبْضُ في بَيْعِ الْمُشْتَرِي الْمَنْقُولَ فَلَا يَصِحُّ بَيْعُهُ قبل الْقَبْضِ لِمَا رُوِيَ أَنَّ النبي عليه الصلاة ( ( ( وسلم ) ) ) والسلام نهى عن بَيْعِ ما لم يُقْبَضْ وَالنَّهْيُ يُوجِبُ فَسَادَ الْمَنْهِيِّ وَلِأَنَّهُ بَيْعٌ فيه غَرَرُ الِانْفِسَاخِ بِهَلَاكِ الْمَعْقُودِ عليه

 

 

 

Question:

In Islam, is share market acceptable or not? 

 

Answer: 

In the Name of Allah, the Most Gracious, the Most Merciful.

As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.

 

There are differences of opinion among senior and reputable Ulama regarding the permissibility of investing in a joint stock market. The different views of the respected Ulama have been exchanged or at least known and seriously considered both views, permissibility and non permissibility are honest academic views.

It is incorrect to disregard an opposing view which is academically substantiated and argued.

Basically, there are three areas of concern in investing in a stock market:

 

  1. a.What is the extent of ownership by a shareholder in the asset of the company?
  2. b.The concept of limited liability
  3. c.The role of the invective shareholder in a company as a representative (Wakeel) in relationship to any Unislamic activity in the partnership.

 

The respected Ulama who believe that investing in a stock market is impermissible state:

  1. a.A shareholder is not an owner of the asset of the company. The company is the owner of the asset. Hence, the dividends are in direct exchange of the invested amount, hence it is money in exchange of money. This is Riba.
  2. b.The concept of limited liability is foreign to Shariah and is not recognised.
  3. c.The shareholder is a Wakeel (representative) of his co-shareholder and the management. He is part to the Unislamic activities of the partnership by virtue of being a Wakeel. All wrong is equally attributed to him.

 

The Ulama that believe investing in the stock market is permissible have argued against these objections.

It is a well known principle and practice among the Fuqahaa that when there are differences of opinion among illustrious Ulama and the issue concern is academically considered, that creates a laxity in the issue. Therefore, investing in a stock market will be permissible. Not investing in a stock market will be Taqwa.

 

 

And Allah Ta’āla Knows Best

Mufti Hussein Issa,
Student of Darul Iftaa

Mozambique

 

Checked and Approved by,
Mufti Ebrahim Desai.
www.daruliftaa.net

 

KHARWASTAN

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