ZAKAT ON INSURANCE
Zakat on Insurance is obligatory to be fulfilled when your insurance policy’s surrender value meets the Nisab. Depending on individual policies, the surrender value may meet the Nisab between the 6th – 11th year. Once the surrender value meets the Nisab, Zakat has to be paid then and for subsequent years henceforth.
Zakat is only applicable to savings endowment policies – where the intention is to grow one’s wealth.
The amount of Zakat you have to fulfil is 2.5% of the surrender value.
For example, when your surrender value reaches or exceeds the Nisab on the 10th year of the policy, you are required to pay Zakat on Insurance for that year and for subsequent years (as surrender value increases every year).
There are two types of Zakat on Insurance:
1 . Conventional: 2.5% of the surrender value at the end of the year when Haul and Nisab are reached.
2. Takaful: 2.5% on the premium paid for the year when Haul and Nisab are reached.
CALCULATING ZAKAT ON INSURANCE
Determine Haul (when Surrender Value reaches Nisab): Year 7
Surrender Value at Year 7: $4,046
Zakat to be paid: $4,046 x 0.025 = $101.15