KSA عربي
KSA عربي
Global عربي
Insurance and its alternatives have become an essential part of modern life for both individuals and businesses.
Every person seeks to secure and safeguard themselves and their families from adverse situations. For this purpose, many people obtain insurance so that, in the event of a mishap, they can protect themselves and their family members from uncertainty.
In Islam, mitigating or avoiding risk is not impermissible; rather, it is advisable. There are many verses of the Holy Qur’an and several Hadiths that encourage precaution and planning. Allah Almighty narrates the story of Prophet Yusuf (عليه السلام) in the context of financial planning:
“He said: ‘Appoint me over the storehouses of the land; I am indeed a knowledgeable guardian.’”
(Surah Yusuf, 12:55)
Similarly, a famous Hadith states:
A man asked the Messenger of Allah (ﷺ): “O Messenger of Allah! Should I tie my camel and rely on Allah, or leave it untied and rely on Allah?”
The Prophet (ﷺ) replied: “Tie it and rely on Allah.”
Thus, Islam encourages believers to take practical measures to avoid risks, as long as these measures remain within the limits of Shariah. The objective behind life and other forms of insurance—such as protection and financial security—is inherently good. However, the conventional insurance system becomes Shariah-impermissible due to the presence of riba (interest), gharar (excessive uncertainty), and maysir (gambling).
Read more about: How does speculation differ from gambling in Islam?
Life insurance is defined as a policy that provides financial compensation to the insured’s beneficiaries if the insured person dies or becomes disabled.
It may also be described as a mechanism through which an individual transfers financial risk to an insurance company in exchange for regular premium payments.
Such coverage is designed to protect beneficiaries from financial loss resulting from the insured’s death, injury, disability, or illness.
Conventional life insurance is based on a risk-transfer mechanism, which works on the following conditions:
1- Contract: It is a sale and purchase agreement in which the participant pays a premium for the insurance cover policy.
2- The insurer collects premiums from different individuals and places them in a pool.
Since there is a gap between the collection of premiums and the payment of claims, the insurer invests the collected amount in different avenues and generates profit.
3- The insurer uses the collected premiums along with the income generated from them to pay the claim if the insured event occurs.
4- If the policy matures and the death of the insured person does not occur, the client is paid a certain amount depending on the policy—usually the sum insured along with the profit generated on it.
The majority of scholars are unanimous that conventional life insurance is haram due to the presence of Shariah-impermissible elements such as riba (usury), gharar-e-kathir (excessive uncertainty), and maysir (gambling). These factors render conventional life insurance impermissible in Islam.
The purpose of insurance in itself is encouraged and advisable in Shariah. In the Holy Qur’an, Allah speaks about helping one another in good causes:
“Help each other in righteousness and piety, and do not help each other in sin and aggression.”
From this Holy verse, it becomes clear that cooperation and mutual assistance among people is encouraged.
However, if the purpose and intention are good but the mechanism used to achieve that purpose is Shariah non-compliant, then the attainment of such a purpose becomes neither permissible nor advisable. Conventional life insurance is from such purposes.
1- Is all life insurance haram in Islam?
Yes, all life insurance are non-permissible from a Shariah perspective, because of the presence of Riba, Gharar and Qimar.
Read more about: What is Gharar & How to avoid it?
2- What is the halal alternative to life insurance?
The halal and permissible alternative to life insurance is Life Takaful, whose mechanism is based on Shariah-compliant models such as the Waqf Model, Ta’awuni Model, and Wakalah Model. It provides a risk-sharing mechanism rather than a risk-transferring mechanism, which is Shariah-impermissible.
3- Does Takaful provide the same benefits as normal life insurance?
Takaful and insurance both are the risk mitigation and financial protection tool that serves a similar purpose.
4- If someone already has life insurance, must they cancel it immediately?
Once the policyholder of a life insurance plan becomes aware of its impermissibility, he must cancel the policy and redeem only the amount he has paid, without taking any extra amount beyond the principal.
5- Can Muslims take life insurance if required by an employer?
First of all, he has to request the employer to arrange a Takaful coverage for him. If it is not possible to arrange the Takaful policy, or if the employer denies,
then take an insurance policy under compulsion, and upon its maturity, only take the amount he has deposited. Any extra amount received, whether by mistake or under compulsion, should be given in charity without expecting any reward.
References:
Malik, Adnan, and Karim Ullah. Introduction to takaful. Vol. 10. Springer Singapore, 2019.
Disclamer:
This post is for educational purposes only, and does not constitute investment advice or a solicitation to take any financial action. It should not be relied upon when making investment or financing decisions.
