Q: My father died. We got a payout from the insurance company. My sister declines its acceptance saying its harem. If this is true, what do we do with her portion? (in office question.)
A: May your father rest in peace, Ameen.
The entire payout would not be viewed as haram (forbidden).
Calculate the amount placed into the fund buy your father. The amount placed into the fund must be subtracted from amount received as part of the payout. The halal money (original placed into the fund) must be divided as prescribed by sharia following the laws of inheritance.
The excess monies must also be divided as per inheritance laws and each person can give it to a poor person without the intention of reward. Should all agree that the excess money must be given to the poor, then there would be no need to give each person this haram money. The executor can hand it over to the poor on behalf of the inheritors.
Allah Certainly Knows Best.