Quran
Hadith
Islamic Text
The general Fatwa regarding insurance is that it is Haram. However, there is an exception made for situations of necessity. So if the law obliges insurance it is permitted to take the minimum requirement. One can also look at Takaful and Mutual insurance, as these may fulfil Sharia requirements.
عَنْ أَبِي هُرَيْرَةَ، قَالَ: نَهَى رَسُولُ اللهِ صَلَّى اللهُ عَلَيْهِ وَسَلَّمَ عَنْ بَيْعِ الْحَصَاةِ، وَعَنْ بَيْعِ الْغَرَرِ
(Sayidina) Abu Hurairah (May Allah Most High be pleased with him) narrated that the Messenger of Allah ﷺ prohibited the sale that is determined by pebbles, and Gharar (a transaction that contains excessive ambiguity). (Sahih Muslim, 1513 -4).
Insurance is prohibited according to the vast majority of scholars. This is due to the prohibition upon Gharar (ambiguity) , as mentioned in the Hadith above. There are other issues with insurance, but Gharar seems to be the most prevalent concern.
What is Gharar? Gharar is excessive ambiguity. Although all transactions will necessitate a degree of ambiguity, when it becomes excessive then the prohibition will be established. When it comes to insurance, you often know what you are required to pay, but what is the return? This is not established. Therefore, the ambiguity is excessive.
Very often there will be no pay-out when taking insurance. Sometimes the pay-out will be in excess of what one paid. This also raises questions of Riba (usury/interest). Even in cases where there is a pay-out it is contingent upon an accident or mishap of some kind.
(وَعَنْ بَيْعِ الْغَرَرِ) بِفَتْحِ الْعَيْنِ الْمُعْجَمَةِ وَالرَّاءِ الْأُولَى أَيْ مَا لَا يُعْلَمُ عَاقِبَتُهُ مِنَ الْخَطَرِ الَّذِي لَا يُدْرى أَيَكُونُ أَمْ لَا. (مرقاة المفاتيح شرح مشكاة المصابيح)
And Bay’ al-Gharar. It has a Fathah on the Ayn with a dot (Ghayn) and on the first Raa. It refers to a contract in which the outcome is not known due to risk, it is not known if it will occur or not. (Imam Ali al-Qari, Mairqaat al-Masabeeh).
Sometimes the law of the land obliges one to take insurance. For example, car insurance in the UK. In such cases it will be permitted for one to take the minimum level of cover due to necessity.
Muslims should work on Sharia compliant alternatives for those who are eager to partake in such transactions. Some scholars have spoken of ‘Takaful’ as a Sharia compliant alternative. This is an arrangement in which money is pooled and then distributed to members in need. A significant difference here is that the members retain ownership of the wealth.
Although the basic principal of Takaful is sound, it is necessary to have the specifics checked by credible scholars. It is also worth checking ‘Mutual Insurance’ as this seems to operate in a manner similar to Takaful. Once again one would be required to check the details of the contract with a credible scholar.
And Allah Most High Knows Best
-Answered by Shaykh Noorud-deen Rashid (03.01.2023)
See also:
Is it permissible to take a mortgage?
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