The idea of insurance has had much discussion among the Muslim community. Many wonder: Is insurance haram in Islam? Let us solve for this, which means we need to understand the fundamentals of Islamic jurisprudence (Shari’ah) and their role in the mechanics of insurance. This article discusses why commercial insurance is considered impermissible by Islam, how it connects to riba (interest), and gambling, uncertainty, and the unjust consumption of wealth. In addition, we would focus on the idea of cooperative insurance and if it supports the Islamic values.
1. Commercial Insurance is Haram in Islam Because
a. Insurance as Riba: A Form.
Ribā (interest/usury) is explicitly prohibited in the Qur’an and Sunnah in Islam. Commercial insurance involves elements of riba in two distinct forms:
Riba al-Fadl: Transaction of money for something less or more.
Riba al-Nasiah: It was interest on the delay in the payment of it.
Insurance companies collect premiums (money) in exchange of guaranteed to pay significantly more if an event such as an accident or loss occurs. This is basically a process of exchange – Kaffir style – with late and uncertain payment of unequal amounts which runs contrary to Islamic principles. The Qur’an condemns riba in strong terms:
b. Insurance as a Game of Chance (Maisir)
The essence of insurance mirrors gambling, which is unequivocally forbidden in Islam:
“O you who believe! These intoxicants, and gambling…and those things forbidden by Satan’s hand, are abominations. So avoid that in order that you may be successful.” (Surah Al-Maidah 5:90)
Buying insurance is risk on something that may or may not happen. Take paying a premium for car insurance: The possibility of an accident is assumed. Insurance falls into the category of maisir, just as we would roll dice or place bets.
c. Gharar (Uncertainty) and C. Insurance
The Prophet Muhammad (peace be upon him) forbade transactions involving uncertainty (gharar):
“The Messenger of Allah forbade transactions determined by throwing a stone and transactions which involved uncertainty.” (Sahih Muslim)
Insurance contracts are by their very nature uncertain. The policyholder does not know:
If the event does occur as shown in the above insurance contract.
When it will occur.
How much compensation they’ll get.
This ambiguity is at such a high level as violates the transparency required for Islamic transactions.
d. Wealth is used Unjustly by D. Insurance
The Qur’an warns against consuming wealth through unjust means:
“O you who believe! Do not devour one another’s wealth unjustly.” (Surah An-Nisa 4:29)
For some services, collecting premiums from many, few of whom will pay out. Research indicates that insurance companies get the rest of whatever the insurance companies collect, as less than 3 percent of the total premiums collected are returned to policyholders. First, this model exploits people financially, and second, this model becomes more consolidated on the prohibition.
2. The Case of Cooperative Insurance: Is It Halal?
Cooperative is insurance.
Commercial insurance is usually referred to as the alternative to cooperative insurance. It is framed as a system based on donations and mutual assistance, aligned with the Qur’anic injunction:
“Help one another in righteousness and piety.” (Surah Al-Maidah 5:2)
However, many’so-called cooperative insurance schemes’ are no more than disguised commercial insurance under different terms, critics say. While they may still include some riba and gambling and uncertainty. The structure cannot be halal unless it is an entirely donation based structure which is farr from the haram parts.
3. Insurance and Trust in Allah (Tawakkul)
Allah (tawakkul) is a central theme of Islam, which requires man to put his trust in Allah with all he does in his life. This principle is contradicted in the pursuit of haram means, like financial security through insurance, e.g. By encouraging the Muslims to find permissible (halal) alternatives to such (emergency) situations Muslims are being encouraged to pool their resources within the community or should rely on zakat (charitable contributions) and waqf (endowments).
Conclusion
Commercial insurance from an Islam standpoint is haram the grounds of riba, gambling, uncertainty, and unjust consumption of wealth. Cooperative may sound like Islamic, but we must review cooperative for Shari’ah compliance.
For perishable ones, Muslims are also encouraged to seek permissioned alternatives and put their trust in Allāh for financial security. If we adhere to Islamic principles our wealth and transactions would be blessed and would not be a source of sin.
More insights should be obtained from scholars and from credible Islamic finance sources. Our aim should be that we live in a way that pleases Allah and preserves the core of Islam.