Prudential Enters the American Sharia Life Insurance Market

IQRAISLAMI.MY.ID -Prudential Financial Inc., the No. 2 life insurer in the U.S., announced this week that it has launched Sharia Life Insurance in America, according to Reuters. 

The new product offers coverage based on Islamic principles, which forbid investing with companies involved in alcohol and gambling or charging interest on loans and insurance premiums, among other restrictions. 

This marks Prudential’s first entry into the Sharia life insurance market, although it does offer some Sharia-compliant products in Asia and the Middle East as well as internationally, according to the report.

The history of Islamic law

Islamic law is based on the Quran, which was written between 610 and 632 AD. The Quran's basic rules concern morality and worshiping one God. 

Islam has traditionally been divided into two branches: Sunni and Shia. Sunni Muslims believe that Muhammad, who lived from 570 to 632 AD, was the final prophet of God, while Shia Muslims believe that Muhammad's successor was Ali ibn Abi Talib. 

In addition, Sunni Muslims follow a literal interpretation of the Quran and Hadiths (sayings or actions attributed to Muhammad), while Shia Muslims have a more spiritual approach. 

The differences in belief have led to conflicts throughout history with major events including the split following Muawiyah's caliphate after his death in 680 AD, the conflict over succession following Imam Hussein's death at Karbala in 680 AD, as well as ongoing tensions between Saudi Arabia and Iran today. 

The Western world first became aware of Islamic banking and finance when Iraq defaulted on its international loans during the 1990s. 

The rise of terrorism has also had an impact on this industry. 

Islamic life insurance will be offered by Prudential, who began offering their services for sale earlier this year . They are now the first to offer coverage under America's current regulatory framework. 

The new business follows on Prudential’s previous involvement in Shariah-compliant products in Europe, Asia and the Middle East.

The fatwa with regard to life insurance

Some Muslims believe that life insurance is not permissible because of the uncertainty involved with future events, and because it involves gambling by investing in something whose value may change over time. 

A fatwa issued by Dar al-Ifta’ al-Misriyyah (The Egyptian House of Fatwas) in 2004 stated that life insurance is forbidden if its purpose is to guarantee an income or capital to be transferred upon one's death. This would violate Islamic law on inheritance. 

However, a fatwa issued by Al-Azhar University in Cairo found that insurance is permissible under Islam if the following three conditions are met: 

1) The policy must pay off only after a period of time rather than immediately; 

2) The money taken out as premiums must not exceed the amount needed to cover costs incurred should any claim arise; and.

3) The policyholder should not expect any profit from the investment. 

A 2005 study by Mercy Corps concluded that 78% of Muslims surveyed believed life insurance was prohibited by Islam. 

One reason cited for this result was the low level of understanding among Muslims about how the product works and what it means to purchase such coverage. Other factors noted were lack of trust in financial institutions and lack of knowledge about alternative investments. 

Prudential believes that the company can help educate Muslims who want to invest but do not understand the risks associated with traditional investments. 

They offer Islamic life insurance products, including payment plans which meet these three aforementioned conditions laid out by Al-Azhar University.

What does it mean for an insurer to be sharia compliant?

Under sharia law, Muslims are only allowed to invest in and purchase products from other Muslims. To be considered sharia compliant, a life insurance company must be owned by Muslims and offer policies that comply with these restrictions. 

An insurer cannot have any partnerships with non-Muslims or companies that do not comply with sharia law, which includes interest-bearing accounts, investments in alcohol or pork production companies, or any other services that violate Muslim beliefs. 

Policies must pay out death benefits as soon as possible after a person’s death, so annuities are prohibited. Life insurance policies may not include an investment component, because they would require paying out some of the payout as profit. 

Instead, premiums are collected up front and payments are made directly to beneficiaries when a policyholder dies. 

With more than one million Muslims living in America today, there is tremendous demand for sharia-compliant life insurance coverage. But until now, this group has had limited options. 

In fact, only two insurers currently sell sharia-compliant life insurance plans in the United States: Al Rajhi Mutual Holding Co., Ltd., and Takaful Ikhlas USA Inc. 

Mostly operating on a localized level, Al Rajhi offers three different types of policies in 11 states while Takaful Ikhlas offers four different types of policies nationwide. 

But now Prudential Financial, the largest U.S. life insurance provider, is entering the market with its own line of sharia-compliant life insurance products in all 50 states. This decision could pave the way for other major insurers to enter this space too . 

Consumers will be able to buy whole life, term life, endowment, and pension protection insurance from Prudential that complies with Islamic principles. The new sharia-compliant offerings will be available at standard rates for those who want it.

Which products are available?

Prudential's new products will be available to Muslims who follow Islamic law, which prohibits Muslims from investing in businesses that profit from activities considered sinful or immoral. 

The products will cover death and permanent disability and are subject to terms and conditions. They include a one-year single-premium term life insurance policy with coverage of up to $250,000, as well as a three-year single-premium term life insurance policy with coverage up to $250,000. 

The company is also selling four types of group insurance: group whole life, group accidental death and dismemberment (AD&D), group basic AD&D and group burial. 

In addition to meeting Islamic standards for investments, these policies offer some benefits not found in other life insurance policies. All premiums for these policies must be paid by the employee; employers do not contribute toward premiums. 

There are no deductibles on any of the plans, and any money left over at time of death is distributed according to the wishes set forth by the policyholder - instead of going into someone else's estate like traditional life insurance policies do. 

Policyholders can elect to donate all or part of their unused premium payments annually to a charity such as Habitat for Humanity International. 

Furthermore, if policyholders choose to be buried after death rather than cremated, their beneficiary can request reimbursement for the cost of burial expenses.

How do I buy sharia compliant life insurance?

Sharia-compliant life insurance is not the same thing as Islamic life insurance. Islamic life insurance is similar to endowment policies in that it provides a lump sum payment upon death, while sharia-compliant life insurance offers a monthly annuity. 

In addition to its monthly payments, sharia-compliant life insurance also pays out at the end of five or ten years, depending on how much coverage you choose. 

Plus, there's no waiting period for disability and term riders are available so you can protect your family if you're diagnosed with a serious illness like cancer. 

If you're interested in Prudential's new sharia-compliant policy, click here! What are the benefits of Sharia compliant life insurance? 

1) Payment can be made either in installments over time or all at once 

2) No waiting periods before disability benefits start 

3) Term rider protects the family when the insured becomes seriously ill 

4) Flexible terms allow you to provide support for dependents by extending coverage through age 25 , adding children onto your plan, or paying for an unlimited number of children’s education.

Which life insurance company does Prudential use?: We're glad you asked! Prudential is an industry leader offering competitive rates and quality customer service.