Insurance from Shari'ah Point of View - Part 1

Source - http://www.islamonline.net/english/index.shtml

Dear scholars, as-Salamu `alaykum. Kindly furnish me with Islamic views on insurance, is it a permissible
transaction? Jazakum Allah khayran.
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Wa `alaykum As-Salamu wa Rahmatullahi wa Barakatuh. In the Name of Allah, Most Gracious, Most Merciful.
All praise and thanks are due to Allah, and peace and blessings be upon His Messenger.

Dear questioner, we are very pleased with your question which revolves around one of the economic aspects of
the Sharia`h, the divine legislation revealed to regulate man’s affairs.

As regards your question, we would like to stress that insurance companies emerged as a corporate bodies
carrying out some sort of transaction new to the Islamic Fiqh, for it was not known at the time of revelation of
the Shari`ah nor at the time of the great scholars who founded the known Fiqh Schools.

Insurance companies offer variety of services, including what is called commercial insurance. All categories of this
kind of insurance are haram from the Shari`ah point of view since they are interest-oriented dealings, and this is
something textually prohibited according to the Glorious Qur’an and the Prophetic Hadith. What also makes such
transaction haram is the fact that they involve gambling which is unlawful and gharar (undue uncertainty) which is
also prohibited for it entails devouring people’s properties wrongfully.

Tackling the issue in detail, we would like to cite for you the following fatwa issued by the prominent Saudi Islamic
lecturer and author, Sheikh Muhammad Salih Al-Munajid, in which he states the following:

All types of commercial insurance no doubt entail Riba (interest) because you pay a specific sum of money and
take a larger or smaller amount should a risk occur. Accordingly, this coverage contains Riba An-Nasi’ah interest
on lent money) and Riba Al-Fadl (exchanging a superior thing of the same kind of goods with more of inferior quality
of the same kind of goods), for as we know, the insurers take premiums from those under this coverage and promise
to give them smaller or larger amounts should a risk occur to the insured. No doubt, this is the very same Riba which
is prohibited according to many Qur’anic verses.

All types of commercial insurance no doubt involve gambling which is prohibited in Almighty Allah’s saying,
(O ye who believe! Strong drink and games of chance and idols and divining arrows are only an infamy of Satan's
handiwork. Leave it aside in order that ye may succeed.) (Al-Ma’idah 5: 90)

All types of insurance include ambiguity since the insurers say to you, “pay such premiums and in case a risk
occurs to you we will pay you such a sum of money.” No doubt, this is the very same gambling. Even distinguishing
between insurance and gambling is an unreasonable contention that cannot be accepted by sound mentality. Rather,
insurers themselves concede that insurance involves gambling.

All types of commercial insurance contain gharar, which is prohibited according to many sound hadiths. We may
cite here the hadith narrated by Muslim on the authority of Abu Hurayrah (may Allah be pleased with him) who said
that the Prophet (peace and blessings of Allah be upon him) prohibited Bai` Al-Hasa (i.e. sale by means of pebbles,
in which the purchaser tells the seller that when he throws a pebble on his goods, the sale contract will be confirmed
or the seller tells the purchaser that on whatever thing a pebble thrown by him falls will be sold to him) and Bai` Al-
Gharar (to sell a thing which one doesn't have in one's possession, nor expects to bring it under one's control, e g.
fish in the river, or birds in the air).