This article was originally published at ProductiveMuslim.com
One of the most pressing concerns for all parents is their child’s future.
Many of us live in single-family homes, have only one breadwinner in the house, relatively small savings, and limited social network to rely upon.
How do we secure our families future in the face of adversity?
How is that even possible when future adversity is an unknown?
Our financial safety nets are non-existent and our social safety nets can wear thin. Some of us are living paycheck to paycheck, barely keeping up with all our expenses.
If the person who pays all the bills passes away, what does the surviving family do?
Having worked for more than a decade in the financial sector, I’m approached all the time with questions about how we as Muslims can best benefit from currently available financial products but also maintain our values as informed by our faith.
Finding that middle ground has been a goal of my career, whether that be when I was working as a senior Shariah advisor in Saudi Arabia, a real estate structuring advisor in Washington DC, or a personal financial coach in Houston TX.
One of the top questions I’m always asked is: “how can I provide for my children when I’m gone?”
This dilemma is universal and timeless. Even the Prophet faced with similar. Allah addressed him:
“Say: If I knew the unseen I would accumulate all good and bad would never affect me.” [Qur’an 7: 188]
Commenting on this Imam al-Tabari said,
“If I had known what the future holds, I’d save for years of famine during years of prosperity.”
While the future is unknown even to the Prophet , he left us with a model to emulate and best practices to implement that will secure our children’s future in this world and the next.
In this article, we’ll cover best practices to secure our children’s future in 3 parts:
- What preparations can we make spiritually for facing this challenge?
- How to prepare financially? with a specific focus on halal investment (instead of life insurance).
- How to build a social safety net, and how strong families and filial piety can be one of the greatest forms of support we have when things are difficult.
1. Secure Your Children’s Future – Spiritually
In the story of Prophet Musa (Moses) and Al-Khidr [Qur’an 18: 60-82], the two men passed by a town whose people were very inhospitable. Despite that, Al-Khidr saw a leaning wall in this town and decided to reconstruct it with his own hands for free, even though the people of that town didn’t deserve this generosity. Perplexed, Musa questioned this act of kindness to an undeserving town, Al-Khidr explained:
“And as for the wall, it belonged to two orphan boys in the city, and there was beneath it a treasure for them, and their father had been righteous. So your Lord intended that they reach maturity and extract their treasure, as a mercy from your Lord. And I did it not of my own accord. That is the interpretation of that about which you could not have patience.” [Qur’an 18: 79- 82]
So, God brought al-Khidr and Moses to a place they weren’t expecting to be, to do an act they weren’t expecting to do, to preserve a legacy left for two minors they did not know, simply due to the honourable position their father had with Allah on account of his righteousness .
Righteousness: The key to Divine Protection for Your Children
The quality of the father in the aforementioned story that guaranteed the protection of his children’s financial well-being was his righteousness and dedication to Allah . Some narrations mention that it wasn’t even the father, but the grandfather who was truly righteous, so this protection exceeds one’s children to one’s grandchildren.
And sometimes it’s hard for us to make that link between spirituality and real-life results, but this is what the Prophet Muhammad taught us and what the companions acted upon.
“Whoever is mindful of God, He gives him a way out, sustaining him from sources he never imagined. Whoever trusts in God, He is sufficient for him…” [Qur’an 65: 2-3]
When we mend the things between us and God in both public and private, God protects us and our children in ways that we never imagine.
Omar, in his famous message sent to Abu Musa, said:
“Whoever mends what is between him and God, God will suffice him of his creation. And whoever puts on airs and claims things not his to claim, God will debase him.”
To get to this level, we have to have a certain level of constant consciousness about our spiritual state and the return that our actions bring on us and our children. One of the Salaf (righteous predecessors) said that he can see the aftermath of his sin almost immediately manifested in his wife and his cattle’s rebellion against him.
Trust Allah AND Tie Your Camel
Working on the spiritual aspects does not mean neglecting taking other means and adequately planning for our children’s future.
‘Working on the spiritual aspects does not mean neglecting taking other means and adequately planning for our children’s future.’ Joe BradfordClick To Tweet
The man is Musa’s story was described as righteous. But he wasn’t a person who had nothing and strived for nothing. Had that been the case, he wouldn’t have owned property on which he built a wall inside of which stashed away money.
This shows that he implemented best practices in his life that would provide for his children materially. And this takes us to the next point: the financial preparation for your children’s protection.
2. Secure Your Children’s Future – Financially
So what are some of the practical means that you can take to protect your children’s future?
Saving money and investing is key to building a strong financial future for your kids. But how should you do this? Sometimes something as simple as putting a little bit of money away in savings can help start the process of securing your children’s financial future.
Typically if you were to approach financial advisor they would try to sell you on a number of different products that they claim would help give your child a firm foothold in your absence.
Unfortunately, many of those products are suboptimal; not only are they structured in ways that are forbidden for us as Muslims but their financial returns really aren’t that great.
Some will tell you to just start a savings account and allow the interest to accrue. But what you’re doing is loaning a bank your money at interest either through a simple savings account or by purchasing a bond, then allowing them to use that money while you are only paid half a percent of interest if you’re lucky. so not only are fixed income instruments impermissible because their loans at interest, but the returns are bad as well.
So what are some of the other things that would typically be offered to you to help provide for your children’s expenses in your absence?
Well in addition to simple fixed income instruments and savings accounts your financial advisor may ask you to open up an education account like a Coverdell ESA or a 529. They will tell you that part of a strong financial plan is a well-diversified portfolio. And that is true. But regardless of whether you put fixed income in an education account or not, you’re still going to have to deal with the morally problematic nature of loaning money at interest and quite frankly the bad returns.
So are there any other options that would both preserve your capital for your kids as well as give you better returns?
One product that is often offered to young parents along with a healthy dose of Doom and Gloom about the inevitability of death is life insurance. Advisors will say that You HAVE to have a life insurance policy and that it’s the only way you’ll have something left over for your family when you die. Now there are a lot of different life insurance products out there that are structured in different ways and the differences between them can be a bit confusing. Some advisors take advantage of this confusion and ramp up the emotional baggage to sell you on something that they’re going to take a commission from.
In this article, we will compare whole life insurance policies to investments. Because the average term life policy is 25 years, and we are projecting for retirement after 30+ years, term life doesn’t apply to our scenario. We want to focus on life insurance products that will have a long-term benefit, as well as, cash value after 30 years, namely whole life products.
So do you absolutely have to have life insurance in order to leave behind something substantial for your children?
The answer is no, and I’ll explain to you why.
Why Life Insurance is Not The Only (or Best) Way Secure your Children’s Future
Without getting into the Fiqh rulings of Life insurance, here’s why life insurance doesn’t make sense. Life insurance is a form of insurance that pays out a sum of money either on the death of the insured person or after a set period. It remains active for a specific term, a time, then it expires. So if you are 25 years old and buy a 25-year policy for example, then you reach 50 years of age and haven’t died then you’re out all the money you placed in that policy. Essentially, the insurance company says “Give me your money and I will guarantee that if you meet certain stipulations, I’ll give you some money back later. But if you don’t, you don’t get anything”. They then take your money and invest it in a pool, then pay dividends and profits to their shareholders.
Another type of life insurance, called “Whole and Universal” insurance combines term insurance with some form of savings or investment that can be cashed out later. The insurance company says: “You have a need, I have a need, let’s pool our money. When we put all our money together if any of us have a claim that needs to be paid, we’ll pay it out of the investment pool, otherwise, we’ll just invest the money we’ve gathered.” What they don’t tell you is that they get a sizable commission for selling these policies to you. This means that your policy takes an instant hit once you open it. Additionally, the returns on these policies are poor.
Now regardless of which type takes your insurance premiums, you as the consumer have no say in how those premiums are invested. What does that mean? It means that your insurance pool managers will probably look for safe, relatively low-risk investments. That means they’ll be looking for interest-bearing fixed income instruments, as well as equities that have low volatility. All in all, your money will most probably be invested in something clearly impermissible investments 9 times out of 10.
Could we create a permissible insurance policy? Well sure, if we structure a company as a Mutual that only invests in Shariah-compliant investments. Does one exist? For many of us, not at this time.
For many of us, especially those of us that do not have access to true Takaful products, this is something which is unavoidable. As I have explained in other articles is an issue that has to be dealt with at the regulatory level. While at times we have to buy insurance products to protect our property or our health, that doesn’t mean that we’re off the hook for making an ethical decision in how we go about doing that.
But even when we have the option to buy an insurance policy, do we really need one?
Halal Investment VS Life Insurance
What if instead of buying an insurance policy, you invested that money in a retirement account?
Let’s take the example of Ahmed and Omar. Both of them are concerned for their children’s future, but Ahmed is sceptical about life insurance and doesn’t like the idea of giving away his money for others to use in ways that he is opposed to morally. Omar, on the other hand, claims that it’s not his problem and that all he is concerned about is how much money is left for his kids when he dies.
Ahmed decides that he’s going to invest his money. He sees that the average return of the market is around 7.5%, so he decides he’ll open a retirement account that invests in Shariah-compliant equities. He deposits 20k in his account to start and over the next 35 years invests $5,500 yearly. The average monthly amount he’d invest would be $458. By the time Ahmed is 65 and wants to retire, he would have 1.2 million dollars in his account, before taxes.
Omar, on the other hand, decides to buy an insurance policy. He buys a policy with a payout of one million dollars, that he makes an initial payment for upfront to the tune of several thousands of dollars, then pays for monthly over the next 35 years. With an average monthly payment of $896 dollars a month, this policy would cost him $322,560. The insurance policy would have accrued a cash value of $617,104 after 30 years.
Ahmed has more than double the amount Omar has, and at a lower cost to himself as well. Best thing is, we’ve had complete control over our money and invested it in companies with halal activities. The same can’t be said for the insurance policy.
5 Reasons Why Investment is Better than Life Insurance
Here are the top five reasons why investing in a retirement account is better than life insurance:
- A retirement account is more straightforward: you can fund it then buy stocks, mutual funds, gold, and real estate.
- In some countries, your contributions to your retirement account are tax deductible. Your contributions to life insurance are a personal expense and are not deductible. Eventually, the policy will cost you more
- With a retirement account, you have access to your money at any time. With insurance, you don’t (depending on the policy) and even then you’ll need at least 10-20 years to build up reasonable cash value you can withdraw, but those can be hit pretty hard by taxes when you withdraw them.
- Retirement accounts are low cost. life insurance policies can be quite costly, with upfront fees usually going towards your agent’s commissions, and investment fees are pretty steep (3% vs. 1.5% in an IRA)
- A retirement account is always yours, while if your insurance policy lapses you’ll have to pay surrender charges, meaning that you’ll not only lose your benefits but much of the cash balance as well (if any).
The No.1 Reason to Invest vs. Buy Life Insurance: Seeking Barakah
This short analysis bolsters what we know from the Sunnah of the Prophet . In a hadith collected by Ibn Maja, he said:
“Whoever sold a property and did not place its equivalent price into something similar, then its most likely than not Allah will not bless that transaction.”
What does the hadith mean? It means that if you take a large sum of money that was earned permissibly and invest it into something that is risky or impermissible, the blessing of Allah (Barakah) will be voided from that transaction. Likewise, when we invest in halal investments, we can be assured that we are using our hard earned halal wealth to build even more halal wealth. With insurance policies, it is not that certain. With this quick review of investment vs. life insurance, the former makes the most sense both spiritually and financially.
3. Secure Your Children’s Future – Socially
Who’ll Take Care of Your Children After You Die?
Today’s society places much emphasis on the nuclear family system. Husband, wife, and 2.5 children is seen as the norm. The extended family system is considered a relic, something that is out of date.
With most parents working in corporations, leaving home early and returning back late, neglect of children is a natural by-product. Add to this that these children are separated from their grandparents, uncles, aunts, and cousins.
When you’re alive, you’re able to maintain such a lifestyle through the help of daycare, nannies, and eventually, kids grow up to care of themselves. But what happens if you die and your children are still young?
‘When you’re alive, you’re able to maintain a nuclear lifestyle through the help of daycare, nannies, and eventually kids grow up to care of themselves. But what happens after you die?’ Joe BradfordClick To Tweet
In the past, the extended family (grandparents, aunts, uncles) all helped raise the extended family’s children – especially if one or both parents passed away whilst children were young. They stepped in and this fostered unity within the family and gave the children a greater sense of self despite losing one or both parents. Moreover, this extended family support ensured that children didn’t suffer financially when they lose their parents and that expenses and experiences were shared.
While many of us live and work far distances from our families, it’s important to keep the above in mind and ensure that our children are part of a wider social network of family and relatives and not an isolated unit in an increasingly uncertain world.
The Prophet has said: “You and your wealth are the wealth of your father.” [Sunan Ibn Majah]
What this hadith is pointing to is the legacy that is left by inter-connected family relationships, and how generationally we benefit from them.
The Prophet also said: “Whoever loves that he be granted more wealth and that his lease of life be prolonged then he should keep good relations with his Kith and kin.” [Sahih Al Bukhari]
Denying the necessity of the extended family has been shown to not only narrow the experiences of the family as a whole but to have very deleterious effects on society (Sarkisian & Gerstel, 2012. Nuclear Family Values, Extended Family Lives).
Strengthening Social Relations
In advocating for closer family relations, we allow our children to not only honour their relatives but also become accustomed to those who may be their guardians if we were to pass away early in their lives.
Moreover, this ensures that when we draft an Islamic Will we can designate who will care for our children after we die, allowing our social preparations to extend well beyond our deaths.
By pooling our resources, maintaining close family ties, and saving for our futures, we can build spiritual, financial, and social wealth that will allow our families to prosper.
Secure Your Children’s Future with a Will
If you haven’t made an Islamic Will, remember that the Prophet said:
“No one that has anything that can be inherited should sleep for two nights without a will in his possession.” [Sahih Muslim]
For those readers in the USA, a service like MyWassiyah.com allows Muslims to create an estate plan in a Shariah compliant, legally valid, and cost-effective manner. By signing up today through this link (Affiliate link), you’ll support the work that Productive Muslim does as well as get 20% off your own Will.
All of this is part of the spiritual preparation that we must make as Muslims, using all means at our disposal to place our families in a situation that prepares them for the next life and preserves them in this life.
All of us are concerned for the future of our children. It is imperative that we take individual responsibility to be the best version of ourselves spiritually so that they may be provided for in the future. Part of that spiritual preparation is trusting that the means that a lot has given us are sufficient for creating a bright and fulfilling life for our kids where they are cared for by loving family members and can support themselves monetarily through the best of Halal earnings that we can provide for them.
My hope is that in this article, we’ve shown how trust in Allah , strengthening our families and making moral and ethical financial decisions can secure our children’s future against adversity in the best manner possible.