I’ve been promising to do a little summary on the position of my school of thought on the use of commercial insurance so here it is. I hold it to be permissible alongside a few of my teachers and very much the minority of the contemporary scholars. I’ll be happy to elucidate further insha’Allah for those who wish to study the subject in detail at one of our study classes.
Insurance can be divided in two types: mutual and commercial
This system depends on the voluntary donations of the community into a fund, to be given to needy and deserving members of that community without any third party to administrate the fund in a business fashion. This type of insurance is permissible by the consensus of the scholars.
Here, a third party manages the fund as a business with profit being the intention. The majority of the scholars see this form of insurance as impermissible for the following four reasons:
1. It is a type of gambling (muqāmarah)
2. There is uncertainty in the transaction (gharar)
3. It is against the principle of trusting (tawakkul) in the decree of Allah ‘azza wa jall
4. It is an innovated/new transaction never seen before with conditions other than that found in the Book of Allah
The responses to the above points are:
1. That which has been declared harām is gambling which involves either a guaranteed loss or profit without any form of work or effort expended for that. Likewise, ones intention is to purely profit with no benefit whatsoever for those who lose out. Undoubtedly this will lead to enmity and oppression as Allah ‘azza wa jall states in the Qur’ān.
As for insurance then this is not the case; rather, for ones policy payment one actually receives a real and perceived benefit namely the peace of mind and security over ones wealth and affairs, and thereby does not fear from utter loss. One could also use the example of paying for a security guard to protect ones house. If he has done his job well, the employer will not hear anything more about it but will have received peace and mind in a relative sense. If there is an incident and the guard is called into action, this would resemble the ‘payout’ in an insurance contract. Thus, ones payment is in return for a defined benefit and hence insurance cannot be likened to qimār (gambling).
What also indirectly supports this opinion is that the concept of gambling is quite clear amongst the general people, and concepts are what are understood by its people; one wouldn’t normally assume that insurance is synonymous with gambling.
2. Firstly, as per the well-known and agreed upon maxim, a small amount of uncertainty in the affairs of the people because of their need for it is pardoned by the Sharī‘ah. Secondly, insurance is underpinned by a complicated and detailed industry based upon rules of probabilities and other factors which explains why one is required to respond to so many different questions and provide so much detail in order for the insurance company to calculate a more informed risk assessment. Hence, the uncertainty is minimised by the insurance companies for their own interests too.
3. Having tawakkul in Allah is an action of the internal – of the heart – and does not mean that one cannot utilise the various means provided by Allah to mankind to protect oneself such as one has not gone against tawakkul if one takes an umbrella with oneself if there is a remote possibility of rain or indeed as the Prophet (sallallāhu ‘alayhi wa sallam) would encourage the storing food for a year at a time to minimise possible difficulties later.
4. The underlying principle in contracts is that they are all permissible until something indicates their impermissibility, and insurance is one such type of contract. Also, the well-known narration above is to be understood as those contracts are deemed impermissible which have conditions which contradict the Book of Allah. This is not the case with insurance.
Finally, the scholars who deem insurance to be impermissible allow the public to take the minimum cover possible to ensure legal status in the West, due to the problems and difficulties that would be caused by breaking the law or being held personally accountable in the event of a claim with the absence of an Islamic community insurance scheme.
Although our position doesn’t need to refer to this principle of necessity, it allows those in the West asking about whether they should obtain cover some relief as they try and live within the law of the land, and at the same time follow their own schools of thought without any contradictions.
And Allah knows best.