Why is life insurance considered as un-Islamic?

Question

I know that no one can give assurance of anything especially life, but I don't think life insurance is about that. It is a way to have something to sustain your family in case you are not there to cater for their needs. So, what's wrong with that?

Answer 1

All types of insurance are Haram (prohibited). They involve Jahalah (sale with lack of knowledge), Gharar (fraudulent transaction where details about the sold item are unknown or uncertain) - both of them are not pardoned - gambling, unjustly taking people's money, and Riba (usury/interest). There are many legal proofs that all these transactions are forbidden. Allah (Exalted be He) says:

And eat up not one another’s property unjustly (in any illegal way e.g. stealing, robbing, deceiving, etc.) [Surat Al-Baqarah 2:188]

And:

Shaitân (Satan) wants only to excite enmity and hatred between you with intoxicants (alcoholic drinks) and gambling, and hinder you from the remembrance of Allâh and from As-Salât (the prayer). So, will you not then abstain? [Surat Al-Mai'dah 5:91]

Moreover, the Prophet (peace be upon him) forbade Gharar sale [Muslim, Book on transactions, No. 1513].

Source: Insurance

Al-Gharar is something that involves uncertainty, risk or speculation.

Narrated by Abu Hurayrah (may Allaah be pleased with him):

“The Messenger of Allaah (peace and blessings of Allaah be upon him) forbade transactions determined by throwing a stone and transactions which involved some uncertainty.” (Narrated by Muslim).

Also,

Shaykh ‘Abd-Allaah ibn Jibreen was asked what if the commercial insurance is compulsory and cannot be avoided.

He said:

If insurance is compulsory and cannot be avoided, the one who is forced to buy it is excused. But if it is not compulsory then it is not permissible to buy it, so long as it is a type of commercial insurance, because it is a kind of gambling which is forbidden.

Note: This is only for commercial insurance

More: Elaborate rulings on Insurance

Answer 2

The short answer to your question is that in Islam you can't trade or make commercial transactions about that which you do not own. Our life is in God's Hands - we do not own our lives, we merely "look after" it. Also as Dr. Hatem quotes in the article linked below from Faisal Maulawi, life insurance is all about accumulating wealth - there is no element of removing harm or risk or anything.

As for other forms of insurance, @Ershad's answer gives you the answer from Eastern scholars who may not necessarily be familiar with insurance as practised in Western lands or scholars who issued their rulings for Muslims living in those lands. Insurance can be a highly complicated matter that requires a good amount of scholarly research to fully understand. For a Western perspective or Muslims living as minority perspective, I highly recommend Dr. Hatem al-Haj's treatise on the subject. Dr. al-Haj is a member of AMJA, the Assembly of Muslim Jurists of America. He concludes by essentially saying that in a vacuum, it would appear after analysis that insurance as practised today commercially is not permissible. Even in context, a lot of it doesn't rise to the level of darurah, except perhaps for certain cases (read the full article for details). In the case of life insurance, there is just no need-based justification for overturning the general impermissibility of insurance. Numerous ayaat and ahadith make it clear that Allah is the Provider, and there is no need to resort to unlawful means for fear of "possible future poverty."

Answer 3

Nothing is wrong with Insurance. Any scholar who forbids it does it from ignorance and weird interruption.

Those same scholars allow insurance in western countries that require it. You can ask them if there is a country that requires you to commit Adultery, steal, drink alcohol, or kill people, would that be ok?

All scholars who forbid it come from weird interruption of things that Allah or his Prophet never forbade.

Let's go through all the reasoning that scholars say that Insurance is Haram.

It is a Gharar sale

The prophet PBUH disallowed a few type of sales, one of them is called Algarar which is the selling of things that are unknown. This makes it Mukarooh and NOT haram.

واتفق العلماء على أن الغرر الكثير لا يجوز ، وأن القليل يجوز ويتسامح فيه

The scholars agreed that Algharar that is a lot is forbidden, however, if the amount is low it is allowed and forgiven. Source

Here are several examples giving by many Mufasreen:

• Selling fish in the sea - aka. I will sell you tomorrow's fish catches for x dollars. Here you don't know how many you will fish. One time you can fish plenty while sometime nothing. Same for selling birds in the sky. [Shafai]
• Selling the fruits before they come - The prophet once said: What will happen if Allah decides to not bring the fruit forth, will you then eat his money?

Basically the idea here is that you are selling something without knowing what the outcome of the product would be (there could be a final item or not). Insurance is more like a program, not a product so the whole thing doesn't even apply, regardless let's assume it is not.

Let's compare that with Insurance programs:

Life Insurance

Every human being will die, as Allah says:

Every soul will taste death, and you will only be given your [full] compensation on the Day of Resurrection. So he who is drawn away from the Fire and admitted to Paradise has attained [his desire]. And what is the life of this world except the enjoyment of delusion.

As proven by Allah, we all eventually die. Which means your family will eventually collect the promised amount of money. Making this a NON Gharar sale.

Health Insurance

Again this is common sense. Every person gets sick, have babies, etc. Every person who has health insurance eventually uses it and saves themselves money.

Unless you are 100% completely sure that you won't get sick or need medical treatment, I don't see how this is considered a Gharar sale, even the Prophet PBUH got sick a few times.

Auto/Home Insurance

The way current auto and home insurance is structured, I believe it is indeed a Gharar sale, since there are many people that have had no issues in their homes/cares for their entire lifetime. However, I do recommend people get it because the good outweighs the bad. Many insurance cost a few dollars a day (we spend more on coffee) and in doing so, if you are doing it with the Niah (intention) you are not expecting anything from it, it takes the expectation away and makes it a non Gharar sale. You are doing it just incase.

Insurance is Gambling

The same argument can be made that it is Gambling, however, as I clearly stated above. For Health and Life insurance it is not gambling as you are sure to get it. What remains:

Auto/Home Insurance

Gambling is paying something for the hope that you will get more. That is not what insurance is. Think of insurance as a program that collects money from each person and if someone needs help, that money goes to help such person. No one buys auto/home insurance hoping that they indeed get into an accident so they can get paid, which clearly makes it a non gambling system.

Insurance contains Riba Alfidal and Riba Alnisaia

Scholars who go that route refer to the following Hadith:

حَدَّثَنَا أَبُو بَكْرِ بْنُ أَبِي شَيْبَةَ، حَدَّثَنَا وَكِيعٌ، حَدَّثَنَا إِسْمَاعِيلُ بْنُ مُسْلِمٍ الْعَبْدِيُّ، حَدَّثَنَا أَبُو الْمُتَوَكِّلِ النَّاجِيُّ، عَنْ أَبِي سَعِيدٍ الْخُدْرِيِّ، قَالَ قَالَ رَسُولُ اللَّهِ صلى الله عليه وسلم ‏ "‏ الذَّهَبُ بِالذَّهَبِ وَالْفِضَّةُ بِالْفِضَّةِ وَالْبُرُّ بِالْبُرِّ وَالشَّعِيرُ بِالشَّعِيرِ وَالتَّمْرُ بِالتَّمْرِ وَالْمِلْحُ بِالْمِلْحِ مِثْلاً بِمِثْلٍ يَدًا بِيَدٍ فَمَنْ زَادَ أَوِ اسْتَزَادَ فَقَدْ أَرْبَى الآخِذُ وَالْمُعْطِي فِيهِ سَوَاءٌ ‏"‏ ‏.‏

Gold is to be paid for by gold, silver by silver, wheat by wheat, barley by barley, dates by dates, salt by salt, like by like, payment being made hand to hand. He who made an addition to it, or asked for an addition, in fact dealt in usury. The receiver and the giver are equally guilty. [Sahih Muslim 1584 e]

However, such hadith only reflects the fact that you can not sell or trade something for something more (ex: I will give you an ounce of gold for 2 ounces). Again Insurance is nothing like this and the above hadith does not apply.

Insurance is not fair

Again for the first two instance it is fair since you are getting the money. However for:

Auto/Home Insurance

If the amount is something that will not hurt you financially. For example a price for a cup of coffee a day and you can afford it, there is no reason why it wouldn't be fair. As long as your Niah (Intentions) are for nothing bad to happen, your expectations make it fair.

There are other reasons which are totally opinionated like it is bad for the community and that the company shouldn't be held responsible for bad things to happen, which I won't go through since it is not from the Quran and Sunnah.

Answer 4

Insurance is totally permissible and is a must in modern world.If any body is saying it is haram and is prompting people not to buy it, he is preventing the widow of somebody a social security. When somebody dies two types of death do occur. One is physical death and other is financial death. Physical death we can not prevent.But financial death we can.And the only solution invented for it so far to do that is insurance.

Answer 5

The traditional people did not understand the new concept of insurance and gave their decisions regarding what they understood.

A lot of people think insurance is a form of investment. Where you put little money and get more later. That's the beginning of "jahala" if anything else.

Insurance is a form of security, a financial security that will make you more secure in life even if some accident happens.

It is a system in which you give some money regularly to an organisation or a company in an agreement that your financial needs will be taken care of in times of urgency and mishaps that may happen to you and you may not be able to cope with it on your own. So its kind of a great financial help provided for a fee. That's all it is.

The problem which may still arise is where do these insurance company spend my money? Is it banks, is it casinos, is it alcohol, is it tobacco? And the answer to this is its non of your business even if it is! Why? Because in Islam its not Haram to sell or buy Halal things from people that maybe involved in Haram activities. Just like you can't say no to an alcoholic who wants to buy bread from you or buy house from someone who is involved in interest business as long as you don't involve in anything not Halal

Answer 6

Life insurance is nothing but selling your life for a few dollars. Allah said, "Believers have purchased the life of hereafter for the price of this world", besides, life insurance moves a heart away from the Prayers, consequently, it undermines Allah. As you can see, if you do life insurance, you might get a prohibition order for getting into Jannah because you already sold your life and there's nothing to exchange. Another issue is, Can you really buy the security with money?

Answer 7

Islam prefers a system which bring Kifalat (social security) to everyone. Even Islam recommends to bring best practices in every sector of life. What Prophet Muhammad and Quraan teaches is to remove "Zulm" in every sector of the society by minimizing risks and threats to every area. Islam doesn't bring any new system, rather its approach was to finetune existing systems with its more social approach. Because of this approach, Islamic teachings targeted the "Zulm" in marriages, in divorces, in slavery, in transactions, in births, in deaths, in household, in relationships, in family planning, in life hereafter and many more. On a high level, Islamic teaching always gives you a "Daayra" (boundary line) to identify the zulm in every day to day life and give you freedom to improve it. Insurance is a social initiative to plan your risk. Risk management is a subject and Islam is all about minimizing the risks in this life and life hereafter. Yes we should always keep on watch what is the Zulm in insurance. Technically there is a nothing wrong in insurance since it covers financial risks. And if once enters in life insurance/Critical Illness Insurance, Disability Insurance at right age, the premiums are so minimal and benefits are very high. On the concern mostly the Islamic scholars has on insurance is that its money goes to banking and debt market. But if someone has a macroeconomic approach on how banking works, then he will be clear that its the best way to do it. Actually, problems with current Islamic scholars are that they are basically the historians and they lack the implementation knowledge and experience on the macroeconomic level. That's why they fail to analyze everything in the correct manner. Problem with us that we have that experience and knowledge but we don't give time to sit with Islamic scholars. The solution to all these silly things will be easy if first Islamic scholar accepts that other streams are also "Ilm" and scholars of other streams are also "Ulema", and to understand all these macroeconomic, macro-social aspects, they also need to approach and mingle with experts of other streams to understand the practical implementable viable approach.

Answer 8

I have rewritten and expanded my answer to express it more clearly.

The questioner asks - what is wrong with life insurance? - almost suggesting that it should be permissible. My answer is there is nothing wrong in principle. There is a weak but common sense hadith which suggests that the prophet was reasonable and practical in the face of uncertainties - Narrated by al-Tirmidhi, the hadith outlines the story of a Bedouin man who was leaving his camel without tying it. The Prophet (PBUH) asked him “Why don't you tie down your camel?” The Bedouin answered, “I put my trust in Allah.” The Prophet then replied, “Tie your camel first, and then put your trust in Allah." So the meaning is take reasonable and prudent precautions from the uncertainties of life before appealing to Allah. Insurance is one such prudent precaution.

To answer the question directly, I review several aspects of insurance which many Islamic scholars have identified which make insurance (including life insurance) impermissible in their opinions. Those elements are gharar (risk, uncertainty) and riba. A good and extensive discussion of the issues (far better than I could do) is provided in papers of the American Muslim Jurists' Association (AMJA) by Dr. Hatem al-Haj and Dr. Jamal Zarabozo. The latter's 70+ page paper on life insurance is here https://www.amjaonline.org/research/contemporary-financial-issues/ and Dr al-Haj's paper is here https://www.amjaonline.org/the-question-of-insurance-part-i/ Their views tend towards impermissibility except in cases of government imposed requirements. I summarize my understanding of the rationales for the prohibition below:

Gharar: The insurance contract contains considerable uncertainty. The payoff is dependent on an uncertain event - accident, natural calamity, or death of the insured. The event may or may not occur over the term of the contract. Contracts containing gharar are not sharia compliant. The rationale stems from the prophet's condemnation of maysir (gambling) Quran 5:90-91 and several ahadith referring to uncertainties of such things as sale of unborn livestock and the catch of a diver.

Riba: There can be two sources of riba. First, the insurance contract contains riba - it almost always involves an unequal exchange of money over time. One may pay a small premium and then collect a large sum from an accident, or beneficiaries may collect a large sum from death of the insured. Or one may pay premiums for years on a fixed term policy and never collect if the insured event does not happen. A second source of riba is from the portfolio management and asset liability matching performed by the insurance company. Matching of the company's liability book (future claims payments) is best done with fixed income investments to minimize risk - bonds, mortgages, real estate, steady income producing assets - as directed by the company's actuary. A majority (but not universal) view among scholars is that this interest would be riba.

Other aspects sometimes raised are the alternative to rely on family or the community instead of insurance to deal with accident or hardship, the intangible nature of the risk protection offered (do not sell what you do not own), the asserted profiteering of commercial insurance companies, and the attempt by the insured to interfere with destiny (or predestiny) ordained by Allah.

If the reader (and moderator) will bear with me, I wish to critique these opinions, particularly since the questioner himself seems to question impermissibility. First, let's address gharar, the main issue.

Gharar - risk and uncertainty - can stem from life events: accidents, natural calamities, theft and crime, and death. These risks are then reflected in the uncertain payoffs in an insurance contract related to such events, as scholars rightly note. The apparent reason scholars view gharar as undesirable is that gambling and uncertainty in contracts can result in ill-gotten gains, or unsustainable losses, with hardship inflicted on those on the losing side. Those who associate insurance with increased gharar surprisingly ignore the fact that the payoff from insurance reduces the hardship experienced by the insured individual. Their conclusion stems from the approach in sharia of evaluating financial constracts in isolation from the overall risk position of the insured. Risk management has to be addressed from the viewpoint of the individual, not from the viewpoint of each contract in isolation. In statistical mathematics, I would call this problem the omission of covariance (I made this mistake once myself in some analysis so I remember it!) The covariance of insurance payments and insured losses is highly negative (and so beneficial).

Riba and insurance companies: their portfolios usually contain fixed income product such as mortgages, corporate bonds and other income producing assets designed to hedge their claims. This is not the exploitive riba charged by moneylenders on poor debtors at the time of the prophet.

Is risk tangible? Insurance is the purchase of a risk management service, like a burglar alarm or a security guard, or building dikes to protect from floods. Does risk have a value? Several Nobel prizes have been awarded for aspects of the pricing of risk in finance - Markowitz, Merton, Sharpe, and Scholes. Insurance company profiteering - the return of equity for insurance companies is not much different from that of other businesses. Should we not allow Allah to determine our destiny and protect us? Tie up your camel first. Life insurance - the objective is not to place a monetary value on life, which is impossible. The objective is to provide some security to dependents and beneficiaries if the insured dies.

Consequently, I see commercial insurance (like takaful) as a useful service. Both convey the benefit of risk pooling from the group to the individual.