Short answer
Conventional funeral insurance follows the ruling on insurance, which the mainstream Hanafi view does not permit when taken by choice. Better options are a prepaid funeral plan with a fixed price, a mosque or community funeral scheme run as mutual help, or simply setting money aside. Muslim funerals are also simpler and cheaper than most.
Voluntary conventional funeral or burial insurance is not permitted, because of gharar, riba and its gamble-like exchange. Paying in advance for a defined funeral service at a fixed price is a permissible purchase, and community schemes where members donate to a shared fund are permissible like takaful.
The four schools agree on this.
Explanation
Funeral insurance (also called burial or final expense insurance) is a small life insurance policy: you pay premiums and, when you die, a lump sum is paid out for the funeral. If you die early the payout exceeds what you paid; if you live long, you may pay in more than it pays out. That uncertain exchange of money for more or less money is why the mainstream Hanafi view treats conventional insurance as impermissible. See Is insurance haram? and Is life insurance halal?
Halal alternatives:
- A prepaid funeral plan. You buy a defined funeral service from a funeral provider at a fixed price, paid now or in installments. This is a purchase of a service, not a bet on when you die. Choose a provider that will do a proper Islamic burial, and check the refund and cancellation terms.
- A masjid or community funeral scheme. Many communities in the UK and elsewhere run schemes where members pay a small yearly amount that is used to cover members' funerals. Run as mutual donations, this is close to takaful and is allowed.
- Savings set aside and a clear note in your will. Funeral costs come out of your estate before debts and inheritance; see What happens if a Muslim dies in debt?
An Islamic funeral needs a simple washing, a plain shroud, the janazah prayer and a grave. There is no embalming, no expensive casket where the law allows, and no costly ceremonies, so the cost is lower than people expect. Schemes vary, so ask a mufti about a particular plan.
Ask a mufti about your own case. This answer explains the general ruling. When the details of your situation matter, as they do here, ask a qualified mufti and give them the full facts. Where to ask a scholar.
The evidence
Quran, Surah An-Nisaa 4:29
يَٰٓأَيُّهَا ٱلَّذِينَ ءَامَنُوا۟ لَا تَأْكُلُوٓا۟ أَمْوَٰلَكُم بَيْنَكُم بِٱلْبَٰطِلِ إِلَّآ أَن تَكُونَ تِجَٰرَةً عَن تَرَاضٍۢ مِّنكُمْ ۚ وَلَا تَقْتُلُوٓا۟ أَنفُسَكُمْ ۚ إِنَّ ٱللَّهَ كَانَ بِكُمْ رَحِيمًۭا ﴿٢٩﴾
O you who have believed, do not consume one another's wealth unjustly but only [in lawful] business by mutual consent. And do not kill yourselves [or one another]. Indeed, Allah is to you ever Merciful.
Money changing hands on an uncertain exchange can be unjust to one side.
Sahih Muslim 1513
Sahih... عن بيع الحصاة وعن بيع الغرر ...
"He forbade the pebble sale and the sale involving gharar."
Contracts built on major uncertainty are forbidden, the main objection to conventional insurance.
Where the ruling is recorded
- Radd al-Muhtar (Ibn Abidin), Kitab al-Jihad, Bab al-Musta'min, on the insurance (sawkara) taken by merchants. Ibn Abidin's early discussion ruling that payment under such an insurance contract is not lawful.
- An Introduction to Islamic Finance (Mufti Taqi Usmani), Chapter on Takaful. Explains why conventional insurance is impermissible and how mutual takaful differs.
Checked by our team. For a more accurate answer to your own situation, consult a scholar. Quran translation by Sahih International. Hadith Arabic from the standard editions of the six books and the Muwatta, with gradings as recorded there; the English is our own rendering. Spotted a mistake? Tell us.