In current times, every individual comes across one form of insurance or another for varying purposes. It has become prevalent in these various forms globally, whether it be the lands of the Muslims or otherwise. At times it may be optional, or at times there are alternatives available or there are times when it is mandatory.
Types of Insurance
There are several forms of commercial insurance available today such as:
- Motor Insurance
- Medical / Health Insurance
- Travel Insurance
- Property Insurance
- Life Insurance and so on…
Harms of Insurance
The scholars have mentioned that all forms of commercial insurance are prohibited. This is because is may consist of one or more of the following forms of prohibited matters:
1. Consuming Other’s Wealth Unlawfully
Commercial insurance involves taking others’ money unjustly (for no return), which is prohibited in commercial compensation contracts because of being included in the general prohibition specified in the following Āyah,
﴿ يَـٰٓأَيُّهَا ٱلَّذِينَ ءَامَنُوا۟ لَا تَأْكُلُوٓا۟ أَمْوَٰلَكُم بَيْنَكُم بِٱلْبَـٰطِلِ إِلَّآ أَن تَكُونَ تِجَـٰرَةً عَن تَرَاضٍۢ مِّنكُمْ ۚ وَلَا تَقْتُلُوٓا۟ أَنفُسَكُمْ ۚ إِنَّ ٱللَّهَ كَانَ بِكُمْ رَحِيمًۭا ﴾
❝O you who believe! Eat not up your property among yourselves unjustly except it be a trade amongst you, by mutual consent.❞Sūrah an-Nisā 4:29
2. Ribā (Usury / Interest)
The commercial insurance contract comprises both forms of Riba: Ribā Al-Fadhl (usury of excess, selling an item for another of the same type, on the spot, but in excess) and Ribā Al-Nasi’ah (usury of delay, conditional excess for delay of payment), for if the company pays the insured, their heirs or due payee more than what was paid by the insured, this is Ribā Al-Fadhl. Similarly, as the insurer pays the insured sometime after signing the contract, this represents Riba Al-Nasi’ah. However, if the company pays the insured as much as they pay, this represents Riba Al-Nasi’ah only and both forms are prohibited by (Qur’anic) Text and Ijma’ (Consensus).
﴿ وَمَآ ءَاتَيْتُم مِّن رِّبًۭا لِّيَرْبُوَا۟ فِىٓ أَمْوَٰلِ ٱلنَّاسِ فَلَا يَرْبُوا۟ عِندَ ٱللَّهِ ۖ ﴾
❝And that which you give in gift (to others), in order that it may increase (your wealth by expecting to get a better one in return) from other people’s property, has no increase with Allāh❞Sūrah ar-Rūm 30:39
3. Gharar (Fraudulent transaction where details about the sold item are unknown or uncertain)
Commercial insurance is a contract of presumed financial compensation which involves clear uncertainty, because the insurer cannot know at the time of signing the contract the amount which they will pay or be given. They may pay one installment or two and then an accident takes place, qualifying them to take what the insurance company has been committed to pay. On the other hand, no accident may take place and thus the insurer pays all the installments and takes nothing. In addition, the insurance company cannot determine the amount it might give or take according to each contract it signs.
Abū Hurairah (Allah be pleased with him) reported that,
Allah’s Messenger (ﷺ) forbade a transaction determined by throwing stones, and the type which involves some uncertainty (Gharar).Muslim 1513
4. Betting (Competing for High Stakes)
The commercial insurance contract is a form of prohibited bet wherein there is undertaking of a financial risk for a doubtful result, for it includes Jahalah (sale with lack of knowledge), Gharar and gambling. The Shari`ah (Islamic Law) only permits the bet that backs the cause of Islam and proves useful to its victory. It was narrated from Abū Hurairah that the Messenger of Allāh ﷺ said:
❝There should be no awards (for victory in a competition) except for arrows, camels or horses.❞Graded Authentic by Al-Albāni. Sunan Abī Dāwūd 2574, Jami’ at-Tirmidhī 1700, Sunan an-Nasā’i 3585, Sunan Ibn Mājah 2878
However, insurance is neither a form of these nor similar to them. Therefore, it is prohibited.
Commercial insurance is a type of gambling, because it involves risk in financial compensation, loss without any reason, and gain without exerting any effort. For example, the insurer can pay one installment then have an accident, thus causing the insurance company to pay all the insurance money. Conversely, no accident might take place and the insurer will pay all the installments without a return. These uncertain contracts are gambling and the general evidence prohibiting gambling are thus applicable to them. Allāh (Exalted be He) says:
﴿ إِنَّمَا يُرِيدُ ٱلشَّيْطَـٰنُ أَن يُوقِعَ بَيْنَكُمُ ٱلْعَدَٰوَةَ وَٱلْبَغْضَآءَ فِى ٱلْخَمْرِ وَٱلْمَيْسِرِ وَيَصُدَّكُمْ عَن ذِكْرِ ٱللَّهِ وَعَنِ ٱلصَّلَوٰةِ ۖ فَهَلْ أَنتُم مُّنتَهُونَ ﴾
❝Shaitān (Satan) wants only to excite enmity and hatred between you with intoxicants (alcoholic drinks) and gambling, and hinder you from the remembrance of Allâh and from As-Salāt (the prayer). So, will you not then abstain?❞Sūrah al-Mā’idah 5:91
6. Unjustified Commitment
The commercial insurance contract includes unjustified commitment not prescribed by Sharī’ah. The insurer is not the cause of danger occurring, rather, they only contract with the insured to guarantee any possible danger in return for a sum paid by the insured to them, without any work done by the insurer and this is Haram (prohibited).
These are only some of the violations of shari’ah which insurance is essentially based upon. There are numerous other violations not mentioned here, and there is no need to do so. Just one of the violations mentioned above is sufficient to make insurance from the things prohibited in the shari’ah of Allāh.
Without insurance things like medical treatment, auto repair etc. become unaffordable!
❝What people must do is put their trust in Allah and if anything happens to a person by the will and decree of Allah then he should be patient and pay the costs and penalties that result from that from his own wealth, not from the wealth of the insurance company. Allah is the One Who will help him with these things and others, so he should not resort to insurance companies and what they involve of risk-taking and consuming people’s wealth unlawfully.❞Extracted from an answer regarding car insurance by Shaykh Sālih al-Fawzān -may Allāh preserve him-, al-Muntaqā min Fatāwā Shaykh al-Fawzān
What about compulsory insurance enforced by law?
❝If you were in a country where it is compulsory (by law) for you to take out an insurance policy; you only get into the contract with them (while keeping in mind) that this contract is incorrect and that you were compelled towards it.❞Extract from an answer regarding car insurance, At-Taʿlīq ʿAlā al-Qawāʿid wal-Usūl al-Jāmiʿah (1/147), Shaykh Muḥammad bin Ṣāliḥ al-ʿUthaymīn -May Allah have mercy on him-
What if I am reimbursed by the insurance company for a medical treatment or a car accident?
❝In this matter, this is what we see to be as correct:
a. If getting insured is a matter of choice, then it is Haram (to get into the contract).
b. But if it is forced upon you, then you only get into a dummy contract with them unwillingly.
Thereafter, (in an accident) if the person is reimbursed with more money than he paid for, then he should not take this (excess amount). If they do not give you anything (as there was no accident), then do not request anything from them; because, even if he asks, they won’t give him. Thus, their taking the wealth from this man for insurance will be oppression on their part.❞Extract from an answer regarding car insurance, At-Taʿlīq ʿAlā al-Qawāʿid wal-Usūl al-Jāmiʿah (1/147), Shaykh Muḥammad bin Ṣāliḥ al-ʿUthaymīn -May Allah have mercy on him-
Can we redeem the amount that we paid as premium to the company?
❝In the event that he suffers some loss to his property and the insurance company intends to reimburse him, then, if the amount he is due back is equal to what he paid for his policy, he can justly take it. If, on the other hand, what he is due from the insurance company is more than he paid, he should not take more than the amount that he paid them. In this way, the process will, in my opinion, be in accordance with Islaamic law.❞Shaykh Muḥammad bin Ṣāliḥ al-ʿUthaymīn, al-Aqalliyāt al-Muslimah – Page 63, Fatwa No.3
– Compiled by Abū Āsiyah Mużaffar -may Allāh forgive him and his parents, his mashayikh, his family and all the Muslims