Prudential Brings Sharia-Compliant Life Insurance to America

IQRAISLAMI.MY.ID -The ever-evolving life insurance industry continues to face a few hurdles in the United States and abroad, with many consumers looking for cheaper alternatives to traditional life insurance policies. 

In an attempt to meet this demand, Prudential has announced that it’s moving into the Islamic life insurance market with plans to offer products compliant with Sharia law in the near future. 

In this article, you’ll learn about the new products Prudential will be offering as well as what Sharia law means when it comes to life insurance products and why so many Muslim Americans have been eagerly waiting for these products to become available in America.

Part 1 – The history

The idea of life insurance as a financial instrument is relatively new in the grand scheme of things. The first formalized life insurance policy was written in 1706 by Nicholas Barbon, who made a fortune on insuring the lives of coal miners. 

Yet when it comes to Islamic law and finance, it’s more accurate to say that life insurance originated centuries ago—in the Qur’an, no less. 

In surah 2:102 (or The Cow), God provides an instruction: And fear Allah and know that Allah sees what you do. And know that Allah is Severe in punishment. 

If any do deeds of righteousness - be they male or female - and have faith, they will enter Heaven, and not the least injustice will be done to them. Who so does evil, they will be requited accordingly. And they will not be wronged. 

The righteous are those who have believed in Allah and His messenger and struggled with their wealth and their lives for the cause of Allah, these are the truthful ones; these are the ones given victory from among men. 

Their Lord gives them good tidings of mercy from Him and approval and good pleasure; and He gives them gardens wherein flow rivers, abiding therein forever. 

Allah has indeed granted for them a true promise which He has fulfilled; verily, He is Exalted in Might, the Wise.

Part 2 – How does it work?

Sharia law dictates the principles of how a Muslim should conduct themselves, and it prohibits Muslims from engaging in certain types of transactions. 

This means that it is forbidden for Muslims to invest in companies that deal with alcohol, pork products, gambling and pornography. 

For this reason, Prudential created a range of life insurance policies which abide by these rules and regulations. The company has created four different options for its customers: two whole life options, one term option and one universal life policy. 

There are some restrictions though. In order to qualify for any of these options, you must be at least 20 years old, have an annual salary less than $5,000 and you can’t have any preexisting health conditions or other commitments (i.e., mortgages). 

It also isn’t allowed for the insured person to take their own life or commit suicide. If they do so, then the family would be able to collect on a life insurance claim. 

However, if someone else takes the insured person's life then no money would be awarded under the Islamic Law since they weren't killed as part of an accident or while defending Islam. 

If someone commits suicide during Ramadan and leaves behind dependents (i.e., spouse and children), then he/she is exempt from paying back his debt as well as their obligation to pay Zakat until after Ramadan passes.

Part 3 – Who benefits from sharia compliant life insurance?

Sharia compliant life insurance is a type of life insurance that operates in accordance with Islamic law. While there are different interpretations as to how sharia should be applied, one common element is that the insured has an ownership stake in the policy. 

As such, the payout from the policy cannot be more than the original investment. This means that some people who would not qualify for regular life insurance may still have access to coverage through sharia compliant policies. 

Another positive aspect of these policies is that they don’t contain any interest and therefore do not violate Muslim teachings on usury. 

One thing to note about sharia compliant life insurance is that it often comes at a higher cost due to the exclusions which reduce the risk. Another point to keep in mind when looking into sharia life insurance is that companies offer varying degrees of compliance with their products. 

Some will offer products which conform only partially to Islamic laws, while others can be fully compliant with all aspects. 

In terms of product types, most insurers offer term life insurance or permanent protection plans (whole life). However, you should read the fine print before deciding whether or not to purchase a policy.

Part 4 – Who can sell this type of policy?

This type of policy can be sold by any licensed life insurance agent, but it is important for the agent to be familiar with the particulars of a Sharia-compliance life insurance policy. 

Prudential's new offering is available in all 50 states and Puerto Rico. The product was developed after an 18-month collaboration with scholars at prominent Islamic centers and universities across the world, including McGill University in Canada; Dr. Abdul Hamid Al Hasanain University in Cairo; Al-Azhar University in Cairo; Ain Shams University in Egypt; Qatar Faculty of Islamic Studies; Darul Uloom Karachi from Pakistan. 

By partnering with scholars from these prestigious institutions, Prudential sought to create a product that upholds the teachings of Islam. 

The resulting asset protection features include Murabaha loans where payment is based on future value rather than initial cost so as not to break Sharia laws against usury; and participating whole life policies (i.e., savings) without commission or bonus payments which could make death benefits taxable under some interpretations of Islam. 

Another key feature is the option for beneficiaries to receive their inheritance only when they reach adulthood, rather than having access to it before then. 

An advisor should always check if this option makes sense before recommending a particular beneficiary get their inheritance early, according to Muhammad Shahbaz Sharif who teaches Islamic law at Yale Law School.

Part 5 – Challenges

This past year, the Islamic State terrorist group killed more than 2700 people. The recent attacks in Paris and San Bernardino have heightened the sense of vulnerability that many Muslims feel in the face of these threats. 

In this context, Muslim individuals are looking for ways to protect themselves and their families against unforeseen tragedies. But what is life insurance? And how does it work? As a Muslim, how do I know if an insurance company is following Sharia Law when I’m buying life insurance? 

Amerika’s first dedicated sharia compliant life insurance company has just been launched by Prudential. Prudential will offer three different types of life insurance products: burial policies, takaful (cooperative or mutual assurance) products, and zakat (Islamic charitable giving). 

With burial policies, the insured person receives financial support after death to pay for funerals and other related expenses. 

With Takaful products there is also protection against unexpected events such as illness or accidents, as well as benefits such as educational funding. Finally with Zakat policies there's a way to give back while you're still alive.

Part 6 – Conclusion

We have come a long way since Prudential launched its first life insurance policy on January 18, 1883. In the U.S., we now offer a wide array of products and services for all stages of life. 

But we didn't stop there. We are proud to announce the launch of our new Islamic life insurance business in collaboration with Takaful Emarat, one of the leading providers of Islamic insurance solutions in the Middle East, Africa and Asia. Our goal is to bring an unprecedented level of innovation to this segment and expand it across markets worldwide. 

For example, instead of using conventional annual premiums which can fluctuate based on market performance, Prudential's Islamic life insurance will be based on actuarial tables that take into account mortality rates as well as potential financial surpluses or deficits that could affect premium rates at any given time. 

The details of this innovative product will be made available soon. As always, we remain committed to being a company built around serving our clients' needs today and tomorrow. 

We look forward to welcoming you back next year when we celebrate our 130th anniversary and share what else has been happening at Prudential. 

Thank you again for your continued interest in us! We hope you enjoy reading about some of the exciting things happening at Prudential. 

We welcome any questions, comments or feedback about anything we've shared here - just get in touch and we'll get back to you promptly.