Question:
Nowadays banks issue ATM cards. If the account holder dies in an accident, the bank gives an insurance amount — for example one or two lakh rupees — to the heirs. Is this money halal or haram?
Answer:
To answer this, we must understand the different types of insurance. Islam mainly objects to life insurance policies that involve interest.
In such policies, a person pays monthly premiums for many years, and if he dies before the term ends, the company returns the paid amount along with interest.
Because of this interest component, scholars object to such insurance. But other types of insurance — like vehicle insurance or medical insurance — are different. You pay a yearly fee for protection. If an accident occurs, the company compensates you. If nothing happens, you do not receive the money back.
In this case there is no interest involved, so there is no clear reason to declare it haram.
Similarly, if a bank provides accidental insurance automatically with an ATM card and gives compensation to the family upon death, and the account holder did not pay premiums that generate interest, then the heirs may accept that money.
A general principle should be used: Whenever we deal with financial matters, we should ask:
Does this involve interest (riba) or something clearly prohibited in Islam?
If it does not, then there is no basis to declare it haram.