Deceased's Life Insurance Money: Included in the Estate or Not?

Insurance Money Is Not Always Automatically Part of the Estate

When a father or mother dies, the question often arises: is the life insurance money paid out divided as inheritance or not? The answer is not simple, because it depends on the policy contents and who is designated as the beneficiary. Many families immediately divide the insurance money equally without checking the policy, even though treating insurance money as part of the estate (tirkah) can be a mistake.

In Islamic inheritance, not all property connected to the deceased automatically becomes tirkah. What becomes tirkah is property that truly belonged to the deceased at the time of death, after deducting debts, funeral expenses, and a will of at most one-third. The basis for distribution is in the Qur'an An-Nisa 4:11 and 4:12 as well as KHI Book II Articles 171 to 214.

Three Possible Statuses of Life Insurance Money

To simplify, there are three possibilities that commonly occur:

1. There is a designated beneficiary. If the policy lists the name of the wife, child, or another person as beneficiary, then in general the compensation money belongs to the beneficiary in accordance with the policy contents. Some scholars view it as a right arising from an agreement, not as inherited property; others still look at where the premiums were paid from.
2. There is no beneficiary, paid to the heirs. If the insurance company pays to the deceased's heirs without specific names, the money is generally treated as part of the estate.
3. The premiums were paid from joint property or the deceased's property. This is what needs to be examined. Some scholars are of the opinion that if the premiums were paid from the deceased's income or the husband-wife joint property, the value of the benefit may be considered as entering the tirkah. This difference of opinion is real, so do not decide on your own.

Therefore, the first step is not to calculate, but to read the policy and ask the insurance company: who is the recorded beneficiary, and on what basis is the claim paid.

If the status of the insurance money is not yet clear, hold off on the distribution for now. It is better to ask the Religious Court, a notary, or an ustadz who understands faraid before the money is distributed.

If the Insurance Money Is Included in the Estate

If it is agreed or decided that the insurance money enters the tirkah, the order of distribution is the same as for other property:

1. Funeral expenses.
2. The deceased's debts, including premium debts, bank debts, or debts to individuals.
3. Will, at most one-third of the property after debts.
4. The remainder is divided among the heirs according to faraid.

Remember the basic provisions: sons and daughters receive 2:1; one daughter 1/2, two or more daughters 2/3; the wife receives 1/4 if there are no children and 1/8 if there are children, shared together if there is more than one wife; the husband 1/2 or 1/4; the father 1/6 if there are children; the mother 1/6 if there are children or two or more siblings. Heirs must be Muslim, and substitute heirs (Article 185 KHI) receive the share of the parent who died earlier and then divide it 2:1 based on gender.

Calculation Example: Insurance That Enters the Tirkah

Mr. Hasan passed away. He left a wife, one son, and one daughter. His inheritance consists of savings of Rp300,000,000. His life insurance policy does not list a beneficiary and is paid to the heirs in the amount of Rp200,000,000. Debts and funeral expenses are Rp50,000,000. There is no will.

Gross property: Rp300,000,000 + Rp200,000,000 = Rp500,000,000. After deducting debts and expenses of Rp50,000,000, the net property becomes Rp450,000,000.

The wife receives 1/8 because there are children: 1/8 x Rp450,000,000 = Rp56,250,000. The remainder of Rp393,750,000 is divided 2:1 among the children: the son Rp262,500,000 and the daughter Rp131,250,000. The total: Rp56,250,000 + Rp262,500,000 + Rp131,250,000 = Rp450,000,000. It matches.

If the wife is listed as the beneficiary in the policy, the result may differ: the insurance money becomes her right according to the policy, and the inheritance distribution is calculated from the other property. Therefore, the policy document is very decisive.

Practical Steps Before the Money Is Distributed

• Collect the original policy, proof of premium payments, and a letter of explanation from the insurance company regarding the beneficiary.
• Prepare the death certificate, family card (KK), and certificate of heirs.
• Record all of the deceased's debts and funeral expenses before calculating the inheritance.
• Separate joint property (gono-gini) before determining the estate.
• If there is a difference of opinion, deliberate first; if it remains deadlocked, consult the Religious Court or a notary.
• Use tools such as IndoWaris to draw the family tree and calculate the shares automatically, so that the figures discussed in the family deliberation are already correct.

This article is general information, not a fatwa or legal advice. Every policy and every family can be different. For a final decision, seek the opinion of the Religious Court, a notary or PPAT, or an ustadz you trust.