Insurance in Islamic Law

ARE INSURANCE POLICIES PERMITTED IN ISLAM

As-Salaam Alaikum Wa-Rahmatullahi Wa-Barakatuhu

Insurance of one's life or possessions is haraam and is not permitted, because it involves gharar (buying/selling something where it is not known whether what is being bought/sold will actually be achieved/delivered, or in what specific quantity, thus putting one's money at undue risk to being lost) and riba (usury, interest). Allaah has forbidden all transactions that are based on riba, and all transactions which involve deceit, as a mercy to this ummah, and to protect them from that which may harm them. Allaah says (interpretation of the meaning):

Reference From Holy Quran whereas ALLAH has permitted trading and forbidden Ribaa[al-Baqarah 2:275] 
And it was narrated in a saheeh report that the Prophet (peace and blessings of Allaah be upon him) forbade deceit. And Allaah is the source of strength.

Abdullah b. Dinar narrated that he heard Ibn Umar (Allah be pleased with them) saying : A man mentioned to the Messenger of Allah (may peace be upon him) that he was deceived in a business transaction, whereupon Allah's Messenger (may peace be upon him) said : When you enter into a transaction, say : There should be no attempt to deceive.

Book 10, Number 3663: (Kitab-Al-Buyu- Book of Transactions) 
If what is meant by submitting your papers to the insurance company is that you have health insurance, or intend to take out health insurance, you should note that this insurance is haraam, as is so-called life insurance, because the insurance policy in both cases involves ambiguity and a kind of gambling. This has been stated by the scholars in their fatwas.

It says in Fataawa al-Lajnah al-Daa'imah (15/297): 
A - It is not permissible for the Muslim to insure himself against sickness, whether that is in a Muslim country or in a kaafir country, because that involves ambiguity and a kind of gambling.
B - It is not permissible for a Muslim to insure his life or all or some of his physical faculties, or to insure his wealth, possessions, cars and the like, whether that is in a Muslim country or in a kaafir country, because these are kinds of commercial insurance, which is haraam because it involves ambiguity and a kind of gambling.
Shaykh Ibn Uthaymeen (may Allaah have mercy on him) said: Insurance means that a person pays a certain amount to the company each month or each year against an accident that may happen to the thing insured.

It is known that the one who pays insurance is losing in all cases, and the insurance company may win or lose, because if the accident is very serious and costs more than the money paid by the customer, the company will lose, but if it is minor and costs less than the money paid by the customer, or if no accident happens at all, then the company will win and the customer will lose.
This kind of contract - i.e., contracts in which a person may win or lose - is regarded as a kind of gambling which Allaah forbids in His Book and mentions alongside drinking alcohol and worshipping idols.
Based on this, this kind of insurance is haraam. I do not know of any kind of insurance based on ambiguity that is permissible, rather all kinds are haraam, because of the hadeeth of Abu Hurayrah (may Allaah be pleased with him) who said that the Prophet (peace and blessings of Allaah be upon him) forbade transactions based on ambiguity.
And Shaykh Ibn Uthaymeen said:
Life insurance is not permissible, because if the angel of death comes to the one whose life is insured, he cannot refer him to the insurance company. So this is a mistake and foolish misguidance, and it involves depending on this company instead of Allaah, because the person is depending on the company, if he dies, to take care of his heirs, which means depending on someone other than Allaah.
This is akin to gambling, indeed it is gambling in a real sense, and in His Book Allaah mentions gambling alongside shirk, divination with arrows and alcohol.
In the case of insurance, a man may pay money for years and years, and he may lose it, but if he dies soon the company may be the loser. All contracts in which there may be gains or losses are kinds of gambling.
From Fataawa 'Ulama' al-Balad al-Haraam, p. 652, 653. 
If you are forced to take out insurance and there is an accident, it is permissible for you to take from the insurance company the same amount as the payments you have made, but you should not take any more than that. If they force you to take it then you should donate it to charity.
Reference From Hadith:
We advise you to fear Allaah and to turn to Him and make a lot of du'aa', for anyone who turns to Him will never be disappointed. And we remind you of the words of the Prophet (peace and blessings of Allaah be upon him): Whoever is stricken with poverty and turns to people for help, his needs will never be met, but whoever is stricken with poverty and turns to Allaah, Allaah will send him provision sooner or later.
Narrated by al-Tirmidhi, 2326; Abu Dawood, 1645. Classed as saheeh by al-Albaani in Saheeh al-Tirmidhi. 

And Allaah knows best.

JazakAllah Khair.

Insurance in Islamic Law

Insurance in Islamic Law

Difficulties with Commercial Insurance in Islamic Law

Commercial Insurance in Light of Islamic Commercial Law

Islamic Law prohibits business transactions that include a great deal of uncertainty. For example, I cannot sell you an unspecified quantity of peanuts for a fixed amount of money. The amount of peanuts must be specified. I cannot sell you a car for a certain sum of money without the make and model of the car being agreed upon beforehand. 

There are many authentic hadîth in this regard. For instance, Abû Hurayrah relates that Allah’s Messenger (peace be upon him) forbade business transactions determined by the throw of a stone and business transactions involving uncertainty. [Sahîh Muslim] 

Insurance is the sale of uncertainty itself. This is the strongest reason for its prohibition, since insurance is effectively the sale of a commodity that Islamic Law does not recognize as saleable. You pay the company to assume some matter of uncertainty in your life on your behalf. In life insurance, for example, you pay a fixed premium each month – say $200 – under an agreement that if you die, the company will pay out – say $75,000. If you die in one month, then the company has to pay you $75,000. If you live for forty years, you will have to pay them $96,000. If at that point you fail to continue to make your payments, your policy is cancelled and you get nothing back. Why is this? It is because you received for your $96,000 the benefit of their assuming your risk for you for those forty years. So you received, according to law, the commodity that you paid for during all those years and the company owes you nothing more. 

There are other problematic areas with respect to insurance, though these are far less important than the one just mentioned. In many instances, insurance resembles a type of prohibited interest (ribâ al-fadl), where two parties exchange the same commodity – gold, silver, dates, etc – in unequal quantities. Taking another look at our life insurance example above, assuming that you were to die one month into your policy, this would mean that you paid them $200 dollars and they paid you $75,000. Since Islam does not recognize the assumption of uncertainty as a salable item, this becomes an example of exchanging a like commodity (money in this case) in an unequal manner. 

Another problem with insurance is that it bears some resemblance to gambling. This comes as a consequence of the uncertainty inherent to the business of insurance. Insurance premiums are set based on the percentage chance that the individual policyholders will collect from their insurance. The company makes its profits by receiving more money from its customers than it pays out to those who deserve to collect. In a somewhat similar manner, a gambling casino earns its profits by calculating probabilities to ensure that its receipts exceed the winnings that it is liable to pay out.

Insurance in Islamic Law

Insurance in Islamic Law

Difficulties with Commercial Insurance in Islamic Law

Clarifying Some Misunderstandings 

Some people have tried to compare insurance to the practice of al-`âqilah. This is where the tribe of a person found guilty of murder or manslaughter is held collectively liable to pay the blood money to the victim’s next of kin. This is very different from the insurance that we are discussing. This is purely an issue of legal accountability and is not a commercial contract between two parties 

Another common misconception that people often have is to assume that insurance is prohibited in Islam because it somehow compromises a person’s faith and his reliance on Allah. They allege that by taking out an insurance policy, the policyholder is displacing his trust in Allah and instead relying on the insurance company. 

This argument is not sustainable. As Muslims, we are commanded to consider natural causes and to take necessary precautions. This in no way compromises our reliance on Allah. We know that our providence comes from Allah. However, we must still go out to work and earn a living. We do so relying upon Allah, by His grace, to provide for us from the fruits of our labor. 

We are commanded by our religion to take precautions against loss. Anas ibn Mâlik reported that one day a Bedouin riding a camel came to the Prophet (peace be upon him) and asked him: “Can I leave the camel alone and trust in Allah?” The Prophet (peace be upon him) replied: “Tie your camel first, then put your trust in Allah.” [Sunan al-Tirmidhî] 

The issue with insurance is not a matter of a person’s reliance on Allah. It is purely a matter of Islamic commercial law. And this is where the problems arise.

Insurance in Islamic Law

Insurance in Islamic Law

Difficulties with Commercial Insurance in Islamic Law

What is Commercial Insurance? 

An insurance policy is essentially a contract between two parties whereby one party (the policyholder) pays a fixed premium to another (the insurer) in return for the insurer bearing full or partial responsibility for possible financial losses incurred by the policyholder. 

There are many different types of insurance policies. There is life insurance. This is where a person pays a fixed premium to an insurer so that in the event of the death of the person insured, a predetermined sum of money will be paid by the insurer to a stated beneficiary or beneficiaries, who are usually the dependents of the insured party. 

There is health insurance, whereby the policyholder pays a fixed premium to an insurer so that the insurer will bear fully or partially the medical costs incurred by those covered by the policy. 

There is liability insurance. The policyholder pays a fixed premium to an insurer who agrees to bear the full or partial costs of any losses incurred by the policyholder on account of legal liability. 

Other forms of insurance can be taken out against the destruction, theft, or loss of specified property. 

All insurance policies share in there being a payment of a fixed sum of money to a party in lieu of that party assuming responsibility for a financial loss that may or may not take place and that may or may not exceed the amount that was paid. 

Insurance in Islamic Law

Insurance in Islamic Law 

Difficulties with Commercial Insurance in Islamic Law

The question of insurance is a major concern of contemporary Islamic jurisprudence. Insurance is an important part of the modern business environment and it plays a vital role in today’s economy. In some cases, people are required by law to take out insurance of one form or another. Many countries make owning automobile insurance a precondition for owning a driver’s license or subscribing to group health insurance a precondition from being allowed to employ others. Financiers often will not loan money unless the property being used as collateral for the loan is insured against loss.

Moreover, people can see that there are clear and undeniable benefits to be had from taking out an insurance policy. An insurance policy provides its holder with a measure of financial security. If a person has health insurance, he can be reasonably confident that medical care will be available to him. If a person has homeowner’s insurance, he is very likely not to be homeless if his house burns down.

For these reasons, Muslims are naturally quite concerned about the permissibility of this kind of business and to what extent they can participate in it. It is one of the most extensively discussed of contemporary issues in Islamic Law and at the same time one of the issues that is most often misunderstood by the general Muslim public.


The purpose of this article is to dispel the commonly held misunderstandings surrounding this issue and to explain exactly why Islamic Law has so many difficulties with commercial insurance. In order to do this, it is necessary to have a correct understanding of what commercial insurance is in next post.