Evidence for the prohibition on commercial insurance

Commercial insurance which is offered by most insurance
companies is a kind of haraam contract, whether it is insurance covering
one’s life or possessions or anything else. The fact that it is haraam is
indicated by a number of texts and shar’i principles, such as: 

1.    
Insurance is a transaction that
involves ambiguity, and transactions that involve ambiguity are forbidden
according to sharee’ah. 

Muslim (1513) narrated from Abu Hurayrah (may Allaah be
pleased with him) that the Prophet (peace and blessings of Allaah be upon
him) forbade gharar (ambiguous) transactions.  

Gharar in Arabic means a risk which is not certain; it may
happen or not, such as selling fish in the water or birds in the air,
because the purchaser may or may not get it.  

Al-Azhari said: Gharar transactions include any transactions
in which something is not known.  

Mu’jam Maqaayees al-Lughah
(4/380-381); Lisaan al-‘Arab (6/317).  

Al-Khattaabi (may Allah have mercy on him) said: 

The root meaning of the word gharar (ambiguity) is that which
is wrapped up and concealed from you. Any transaction which is based on
ambiguity or on inability to achieve something is gharar. There are many
kinds of ambiguity, which all involve not knowing exactly what the
transaction involves.  End quote. 

Al-Nawawi (may Allah have mercy on him) said: 

With regard to the prohibition on ambiguous transactions,
this is a very important principle with regard to commercial transactions,
and includes many issues, such as selling things that are not present or are
unknown, and so on. All of these are invalid transactions because there is
ambiguity with no reason for that. 

Some kinds of ambiguity may be tolerated when engaging in a
transaction if there was a reason for it, such as not knowing about the
foundations of the house; this transaction is still valid because the
foundations belong to what can be seen of the house, and because there is a
reason for this, as it is not possible to see the foundations. 

They are unanimously agreed that it is invalid to sell
foetuses that are in utero and birds in the air. The scholars said: The
reason for it being invalid is because of ambiguity. End quote. 

The scholars are agreed that a great deal of ambiguity is not
permissible, but a little of it may be overlooked. They differed as to what
constitutes a little or a great deal. 

Bidaayah al-Mujtahid, 2/187; al-Nawawi
said something similar in Sharh Muslim. 

Insurance policies are among the contracts that involve
a great deal of ambiguity; even lawmakers themselves have affirmed that
insurance contracts are based on probabilities, which means ambiguous,
because neither the insurer nor the insured can know at the time of entering
into the contract what he will give or take. The person who takes out
insurance may pay one instalment, then an accident may happen and the
insurer is obliged to give what he agreed to give to him, or perhaps nothing
will happen at all, so he will pay all the instalments and not take
anything. 

2.    
Insurance contracts are a kind
of gambling 

Gambling is haraam, as it was forbidden by Allah, when He
said (interpretation of the meaning):

“Intoxicants (all kinds of alcoholic drinks), and
gambling, and Al‑Ansaab (stone altars for sacrifices to idols etc), and Al‑Azlaam
(arrows for seeking luck or decision) are an abomination of Shaytaan’s
(Satan’s) handiwork. So avoid (strictly all) that (abomination) in order
that you may be successful”

[al-Maa’idah 5:90] 

What is meant by gambling is when a person pays something of
his own money and takes a risk: either he will gain more than it or he will
lose the money that he paid. 

See the answer to question number
89746 and
106601. 

Insurance is a transaction that is connected to a risk that
may or may not happen, so it is, in effect, gambling, because the person who
takes out insurance is taking the risk by paying the premium. Either he will
take more than it or he will lose it if the risk against which he is insured
does not happen. 

The person who is insured may pay twenty and take one
thousand, or he may pay one thousand and take one thousand, or he may pay
one thousand and not take anything if the risk against which he was insured
does not happen. 

Is this not taking risks and gambling? 

3.    
Insurance involves riba al-nasee’ah
and riba al-fadl, in the event that compensation is paid 

Muslim (1587) narrated that ‘Ubaadah ibn al-Saamit (may Allah
be pleased with him) said: The Messenger of Allaah (blessings and peace of
Allah be upon him) said: “Gold for gold, silver for silver, wheat for wheat,
barley for barley, dates for dates, salt for salt, like for like, same for
same, hand to hand. But if these commodities differ, then sell as you like,
as long as it is hand to hand.” 

This hadeeth indicates that if a person sells gold for gold,
it must be equal amounts and the exchange completed in the same sitting. 

So it should be sold gram for gram, with nothing added, and
the exchange must be completed in the same sitting. It is not permissible
for the two parties to separate without each of them having taken what is
due to him. 

If a person sells gold for gold with a difference in the
amount, then they have fallen into riba al-fadl. If the exchange is not
completed then they have fallen into riba al-nasee’ah, i.e., interest
charged when hand-to-hand exchange is delayed. 

If gold is sold for silver then the exchange must be
completed in the same sitting, and it is permissible for there to be a
difference in the amounts. So a gram of gold may be sold for 10 g of silver,
for example, but it is not permissible for them to separate without the
exchange having been completed. 

Currency comes under the same ruling as gold and silver in
this regard. It is not permissible to exchange one currency for another
unless the exchange is completed in the same sitting. If the currency is all
the same, then it must be like for like and the exchange should be
completed, just as if gold were being exchanged for gold. 

Insurance includes riba of both types: riba al-fadl and riba
al-nasee’ah. 

What that means is that what the insurance gives to the
person who takes out insurance, or to his heirs, if the risk defined in the
contract happens, will be one of three things: either it will be less than
what he paid or more than that or equal to it. 

In all these cases what the company gives to the insured
person happens after he pays the insurance instalments during a period of
which the end is in fact unknown. 

So the reality of the transaction is that it is paying money
for money to be given at a later date. 

If the amounts are equal, then this is riba al-nasee’ah; if
more [or less] is paid, then it is riba al-fadl and al-nasee’ah, both of
which are haraam on their own so how about if they are combined? 

4.    
Insurance is consuming people’s
wealth unlawfully 

Consuming people’s wealth unlawfully is haraam. 

Allah says (interpretation of the meaning): “O you who
believe! Eat not up your property among yourselves unjustly except it be a
trade amongst you, by mutual consent” [al-Nisa’ 4:29]. 

What is invalid is every way which is not permitted by
sharee’ah, and which involves stealing, betrayal, robbery, gambling, riba-based
contracts and corrupt transactions. This was stated by Abu Hayyaan in his
commentary on this verse. 

What is meant by insurance involving consuming people’s
wealth unlawfully is if the money paid by the insurance to the person who is
insured is more than he paid — such as if the risk occurs after paying just
one instalment — then on what basis is he entitled to this money? And if
the risk does not occur, then on what basis is the insurance company
entitled to the payments made by the person who was insured without anything
in return? 

Statistics by a German expert have proven that the ratio of
payments made by insurance companies in compensation to individuals is
equivalent to no more than 2.9% of the total amount of payments made. 

On what basis is the insurance company entitled this money,
and in return for what? 

5.    
Insurance contracts make
obligatory things that are not obligatory according to sharee’ah 

Insurance contracts oblige the insurance company to pay
compensation, if the risk against which insurance was taken happens. On what
basis is this made binding? The insurance company did not cause the danger
or make it happen; it did not commit any acts of aggression or shortcoming,
so how can it be forced to pay compensation for something for which it is
not liable according to sharee’ah? 

6.    
Insurance harms both
individuals and society 

In addition to what is mentioned above, insurance is not free
of other harmful effects, among the most important of which are the
following: 

Taking things lightly: it makes the people insured careless
about protecting their property against calamity; they may even go further
than that and cause accidents or make accidents worse. This causes a great
deal of harm to individuals. For example, some drivers whose lives and cars
are insured may become careless and not pay heed to traffic laws and
regulations, which exposes individuals to harm caused by accidents and car
crashes. 

Each one of these reasons is sufficient to indicate that
commercial insurance is haraam and that insurance contracts are invalid
contracts which are not permitted by sharee’ah, and that it comes under the
heading of consuming people’s wealth unlawfully. So how about when all these
reasons are combined? 

Hence the majority of contemporary scholars have ruled that
all forms of commercial insurance are haraam. Statements have been issued by
the Council of Senior Scholars in the Land of the Two Holy Sanctuaries and
by the Islamic Fiqh Councils in Jeddah and Makkah, that commercial insurance
is haraam according to consensus, and not one member of the Council
disagreed. 

We have quoted a great deal of these statements and fatwas in
the answers to various questions on our site. 

See a lengthy discussion of commercial insurance in
Abhaath Hay’at Kibaar al-‘Ulama’, 4/33-315. 

And Allah knows best.