The Ruling on Insurance
Insurance is originally derived from the English word “Insure.” Literally, it means “assurance.” Since the person taking insurance is given assurance of compensation for future losses and protection from risks, it is called Insurance. The insurance company is also called an insurance company because it provides this assurance to the insured. It is a matter agreed upon between the insured and the insurance company. The arrangement is such that the insurance company, which has many investors and operates like commercial companies, continuously collects insurance premiums from the insured without installments, and after a specified period, returns the amount to the insured or their heirs according to conditions. Along with the principal amount, it also pays some additional amount as profit at a fixed percentage rate, which in their terminology is not called riba (interest) but a bonus, meaning profit.
The company’s purpose in collecting this money is to lend it to others at a higher interest rate or invest it in trade or buy property to earn profit. Its partners earn a large sum as interest or profit without spending their personal money. From this profit or interest, the insured also receives a share.
It may be that to some extent, their purpose is also to help distressed or troubled individuals. But the main purpose is as stated above. The insured’s aim is to keep their capital safe and also increase it. Additionally, their heirs may receive assistance, or in case of sudden accidents, their losses may be compensated.
There are three major types of insurance:
1. Life Insurance:
Life insurance covers the entire body, but nowadays, insurance of individual parts such as hands, head, and legs is also increasingly registered.
2. Property Insurance:
This includes insurance of buildings, factories, vehicles, ships, and other items.
3. Liability Insurance:
This includes insurance for children’s education, marriage, etc. The insurance company is responsible for fulfilling these tasks.
Summary: Whatever the form or type of insurance, every form and type is unlawful because it involves taking interest, cooperating in interest-based business, and gambling. Taking interest means that the insured pays a certain amount and receives more than that amount without any effort as profit, which is essentially interest. Cooperation in interest-based business is because the investors in the insurance company engage in interest-based business with this money. It is gambling because neither the insured nor the insurance company knows who will bear the loss. For the readers’ further benefit, the detailed fatwa of Maulana Ubaidullah Rahmani Mubarakpuri (may Allah have mercy on him) is presented in the following lines.
(Maulana Ubaidullah Rahmani Mubarakpuri) In my view, the opinion of those who declare life insurance unlawful is correct, and those who have issued fatwas permitting it are mistaken.
If one reflects on the reality of insuring a human or animal’s life or property, the answer to the question is nothing other than:
Permitting insurance (insurance) is to make interest or gambling lawful.
The principle of insurance companies is that if the insured person or insured animal dies before the specified insurance period or the insured property is destroyed by an unforeseen disaster within the specified period, the full insured amount is paid to their heirs or the owner of the property or animal. If the insured person, animal, or property remains alive and safe until the specified period, the total collected amount along with interest is given to the insured or the owner of the property. If after collecting some amount, the insured deliberately refuses or is unable to pay the specified installments continuously for two years, the insurance company confiscates the paid installments.
The question is: What is the status and nature of the excess amount that insurance companies pay to the insured or their heirs beyond their collected amount in case of death or destruction within the specified period or survival and safety until the specified period? Where does it come from and how?
Obviously, it is neither charity nor a gift nor a loan. Then there can be only two possibilities: either the insurance company lends the collected money to others at interest and distributes a fixed share among the insured, as is the method of ordinary banks, or the insurance company itself trades with this money and deposits a fixed and agreed share of the profit in the accounts of the insured. This is undoubtedly interest because paying a fixed profit in addition to the principal amount is called interest.
The idea and justification that the insured are partners in this trade as rabb-ul-mal (capital owners) and mudarib (entrepreneurs), and the insurance company acts as the agent and mudarib (with a fathah on the ra), so the excess amount is lawful and pure for the insured, is wrong and invalid. Because if this were lawful, these partners or capital owners (the insured) should not receive a fixed amount but should share in profit and loss with variations. Here, a fixed and predetermined profit (excess amount) is given, and insurance companies generally fix the rate and amount of the excess amount in advance. Even if a company does not fix it in principle but bases the excess amount on annual profit and loss percentages, this method cannot justify it because the possibility of loss is not allowed in their business. Moreover, some agreed principles of insurance companies make the entire business and structure unlawful according to Shariah.
The second possibility is that the money of later insured persons is given to earlier insured persons. But no one has the Shariah right to give one person’s money to another in this way. In such a case, issuing a fatwa permitting it is a fatwa permitting interest or gambling, nothing else.
Confiscating the paid installments if the insured deliberately or forcibly fails to pay the remaining installments after collecting some amount—what Shariah rule justifies this? If it is not unlawful seizure of wealth, then what is it? Also, where is it Shariah permissible for the insured to give money to those who conduct such business and consume their money on a false principle without any Shariah reason?
In any case, the insurance business is unlawful according to Shariah. It is a natural requirement of the European capitalist system and its concept is far removed from Islam. So how can life insurance, etc., be lawful?
[For more details, see: Risalah, The Status of Insurance in the View of Islam: pp. 5-7]
