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Fatwa CenterHolding an insurance policy to avoid income tax
Question
Assalamu alikum warahamatullahi wabarakatuhu.I am an Indian.I am holding an insurance policy for the past 4 years. But only recently i came to know that it is also interest ( Riba ) and not permissible. Please kindly clarify as to which is true. This insurance policy in India is useful in avoiding income tax by the government. So it is this way is useful to me. So please clarify whether i can have this or still should i cancell. Jazakallah.
Answer
All perfect praise be to Allaah, The Lord of the Worlds. I testify that there is none worthy of worship except Allaah, and that Muhammad 
is His slave and Messenger.
All kinds and forms of traditional commercial insurance are forbidden, and if you had conducted the insurance contract while not knowing the ruling, then you are not sinful provided you were not neglectful in inquiring about it [its ruling]; for more benefit, please refer to Fataawa 81425 and 81441.
If you can cancel the insurance contract in a way that you may take back the installments that you had paid and cancel the contract, then it is an obligation on you to do so. However, if the insurance company does not give you back the installments when you cancel the contract, then it becomes permissible for you to maintain the contract until the end of the period as a means of getting back your money; in which case you only take what you had paid and give the remainder in charity.
As regards the issue of maintaining the insurance policy in order to avoid the income tax, then, in our view, this is not permissible because the end does not justify the means. What is forbidden may have benefit but this benefit is Islamicly nullified.
For more benefit, please refer to Fataawa 89947 and 90774.
Allaah Knows best.
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