6829 – 0104
Question:
Why is insurance haram?
Answer:
As salām ʿalaikum wa raḥmatullāhī wa barakātuhū
In the Name of Allāh, the Most Gracious, the Most Merciful.
Conventional insurance policies are not permissible due to three prohibited elements:
- Interest.
- Gambling.
- Uncertainty.
Interest
The amount of damage is impossible to quantify beforehand. This leads to interest. The return that the insurance policy holder may get will rarely equal to the premiums he paid. This discrepancy between payment and return constitutes ribā al-faḍl i.e., interest.
For example, if Zayd takes out an insurance policy and pays premiums of R100 a month. If an accident occurs in the second month and results in a bill of R10,000, the insurance company will be obliged to pay out an excess of R9,900 on Zayd’s behalf. Although Zayd only paid R100, he is legally entitled to more than that amount. That is interest. Zayd is getting something in lieu of nothing.
Allāh Taʿālā says in the Qur’ān:
يَـٰٓأَيُّهَا ٱلَّذِينَ ءَامَنُوا۟ ٱتَّقُوا۟ ٱللَّهَ وَذَرُوا۟ مَا بَقِىَ مِنَ ٱلرِّبَوٰٓا۟ إِن كُنتُم مُّؤْمِنِينَ ، فَإِن لَّمْ تَفْعَلُوا۟ فَأْذَنُوا۟ بِحَرْبٍ مِّنَ ٱللَّهِ وَرَسُولِهِۦ ۖ وَإِن تُبْتُمْ فَلَكُمْ رُءُوسُ أَمْوَٰلِكُمْ لَا تَظْلِمُونَ وَلَا تُظْلَمُونَ
Translation: O you who believe, fear Allah and give up what still remains of ribā, if you are believers. But if you do not (give it up), then listen to the declaration of war from Allah and His Messenger. However, If you repent, yours is your principal. Neither wrong, nor be wronged.
Jābir رضي الله عنه narrates:
لَعَنَ رَسُولُ اللَّهِ صلى الله عليه وسلم آكِلَ الرِّبَا وَمُوكِلَهُ وَكَاتِبَهُ وَشَاهِدَيْهِ وَقَالَ هُمْ سَوَاءٌ
Translation: Rasūlullāh صلى الله عليه وسلم cursed the accepter of interest and its payer, and one who records it, and the two witnesses, and he said: They are all equal.
[Ṣaḥīḥ Muslim: 1598]
Gambling
In conventional insurance, the policyholder stands to lose all the premiums paid if the risk does not occur. The policy holder will only be rightful for a return in the case that an unpredictable event occurred, such as an accident, fire or theft. This amounts to gambling.
For example, Zayd pays R100 premium a month; that is R1 200 per year. He may or may not ever collect on the insurance policy. This is gambling. He stands to lose or gain.
Allāh Taʿālā says in the Qur’ān:
يَـٰٓأَيُّهَا ٱلَّذِينَ ءَامَنُوٓا۟ إِنَّمَا ٱلْخَمْرُ وَٱلْمَيْسِرُ وَٱلْأَنصَابُ وَٱلْأَزْلَـٰمُ رِجْسٌ مِّنْ عَمَلِ ٱلشَّيْطَـٰنِ فَٱجْتَنِبُوهُ لَعَلَّكُمْ تُفْلِحُونَ
Translation: O you who believe! Wine, gambling, altars and divining arrows are filth, made up by Satan. Therefore, refrain from it, so that you may be successful.
Uncertainty
An insurance policy results in contractual uncertainty. An uncertainty in a transaction renders the transaction invalid.
Rasūlullāh صلى الله عليه وسلم has prohibited a transaction in which there is uncertainty. Consider the following ḥadīth:
عَنْ أَبِي هُرَيْرَةَ، قَالَ نَهَى رَسُولُ اللَّهِ صلى الله عليه وسلم عَنْ بَيْعِ الْحَصَاةِ وَعَنْ بَيْعِ الْغَرَرِ .
Translation: Abū Hurayrah رضي الله عنه reported that Allāh’s Messenger صلى الله عليه وسلم forbade a transaction determined by throwing stones, and the type which involves some uncertainty.
[Ṣaḥīḥ Muslim: 1513]
And Allāh Taʿālā knows best.
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