Thrift Saving Plan (TSP) / Life Insurance:
Dear Br. I have a question about a money matter and halal or haram. In the federal government there is a investment program which is part of the retirement program.This program called Thrift Savings Plan(TSP). In this program the employee can contribute up to 10% of his basic pay each pay period to his TSP account. The government will match 50% of that contribution. Example: If the monthly basic pay is $2000, the employee contribution is $200 (10%), the government will contribute $100 and will invest what ever you have in your TSP account in GSI( Government Securities Investment), CSIIF(Common Stock Index Investment Fund), and FIIIF(Fixed Income Index Investment Fund). You can choose where you want to invest, you can invest in them all. You can withdraw nothing until you leave the government.So the one who get $2000/month will end up in the end of the year with $3600 + what ever gain from the investment.Is there any islamic question mark in this money matter?. Another thing is the life insurance issue.What is wrong if you pay $15.00 a month and your family end up with $50000 if you died despite the fact that the time of death is up to Allah (SW)?. My regards Salamat
Salams. Here is my response, wa Allahu Alam.
1. The TSP Government Employees' Savings Plan:
The Plan was devised to attract employees to work for the Government and offer an alternative to the 401-K plans & Profit Sharing Plans offered by corporate America. First: Is the idea of saving 10% of income and the Government matches 50% or 5% of salary acceptable from an Islamic Point of View? The answer is a definite YES.
You are strongly encouraged to save your 10% and more (even though savings above 10% are not matched). From experience, you end up building a decent savings foundation for supplemental retirement income. PLEASE DO IT.
Second: How to direct the trustees of the TSP to invest these savings?
You cannot invest the money in any Government Securities (otherwise called bonds or bond hybrids). Bonds and their hybrids are RIBA instruments. You can invest in an indexed fund that is indexed to the market. It is preferred that indexation should be to an Islamic Index (as you know there is now the Dow Jones Islamic Index ), Due to the lack of a "purified"
equity index, you are encouraged to invest your money in the indexed fund.
However, you are encouraged to pool your efforts with other Muslims working in the
Government to ask that they offer an Islamic Portfolio investment option.
There are some already available. These are:
1. Salomon Smith Barney Socially Aware (Islamic) Portfolio
2. Roll & Ross Asset Management.
3. Wellington Management Group.
4. Brown Brothers Harriman.
5. Fidelity Management.
Also, please note that I have not included Amana Fund. Its Islamic stock screen guidelines do not coincide with the majority of Ulema Opinions regarding investing in the stock market. Also, the fund is too small to attract institutional investment boards.
2. The Life Insurance:
The problem of the Ulama with life insurance is not the insurance itself as many in the uninformed public thinks. It is how the insurance companies invest their money and how they allocate profits and unused premiums in case there is no disaster. There is a brother who is working with some Saudis and Kuwaitis who is trying to offer a "TAKAFUL" Program. What that is really is nothing but an agency representation of a Mutual Insurance Company but he
does NOT solve the investments problem using RIBA.
I believe that solving the way insurance companies invest their money will take a long time till will build the Banking and Finance Foundation of Islamic Shari'aa in N. America. So, using the concept of Imam Abu Hanifah, "La Dharara Wa La Dhirar" you can do life insurance till there is an alternative.