Is it considered a sound action, for which one will be rewarded, to take the amount of money received from forbidden insurance and give it to the needy?

Money acquired through an illicit contract, such as gambling or commercial insurance, is unlawful money. It is not permissible for a Muslim to possess it. If one comes into possession of it, it is obligatory to dispose of it by returning it to its owner if possible. Otherwise, it is obligatory to give it as charity to those in need, and this is a proper action. Ibn Taymiyyah said: "Money whose owner is unknown should be spent on the welfare of Muslims, and charity is the greatest of these expenditures."