Car Insurance, Life Insurance
Question:
As-salam o alaykum,
Is it allowed and acceptable in Islam to have:
1. Car Insurance (please note by state law we must have car insurance)
2. Life Insurance
Answer:
Wa Alaykum Assalam
1. Insurance in General:
Insurance is a new concept and did not exist at the time of the prophet (pbuh). It is therefore wrong to say that insurance per se is haram. Insurance is simply buying (financial) security and there is no reason to argue that this is Haram. Instead we need to see whether there are any haram elements in an insurance contract. Car and appliances insurance 'normally' does not have any haram elements in them. Customer is not directly involved with riba (interest) or gambling in these kinds of insurances. Therefore there is no problem with a 'typical' car insurance.
2. Life Insurance:
Life insurance is a very clear example of buying (financial) security. In any case, since in my understanding it is usury and not modern commercial interest that is condemned by the Qur'an, therefore in principle I do not consider life insurance (of the kinds that people normally take) to be of any problems from religious point of view. The only exception is when taking life insurance exploits the insurer, which I think does not apply in the case of the typical well established, highly regulated life insurance policies in the modern economy. If there is a case where the insured knows that the life insurance can result in exploiting of the insurer then this can amount to riba and needs to be avoided.
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Since you may be interested to know the views of those scholars who disagree with my stance above and do consider normal interest to be riba, in the following lines I also explain an answer that is based on their view, and leave it to you to decide which view you feel to be more convincing:
Life insurance is a very clear example of buying (financial) security and has no problems from this aspect per se. When it comes to the contract, there are many types of arrangements but it seems that overall and in a broad sense, there are two types of life insurance contracts:
- Paying the money only if the policy holder dies (or develops critical illness) before the end of the term.
This does not involve fixed increase on the basis of time and therefore is not technically riba.
- Paying the money if the policy holder dies (or develops critical illness) before the end of the term, otherwise at the end of the term.
This type of contract does involve fixed increase on the basis of time since 'the end of the term' indicates when the predetermined money needs to be paid (when the policy holder survives). This is therefore clearly riba and not allowed.
Note however that even in the latter situation, the law of necessity allows a person to take life insurance, if the person thinks that it is necessary for his/her well being at the retirement age.
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November 2013
Revised: July 2016
As-salam o alaykum,
Is it allowed and acceptable in Islam to have:
1. Car Insurance (please note by state law we must have car insurance)
2. Life Insurance
Answer:
Wa Alaykum Assalam
1. Insurance in General:
Insurance is a new concept and did not exist at the time of the prophet (pbuh). It is therefore wrong to say that insurance per se is haram. Insurance is simply buying (financial) security and there is no reason to argue that this is Haram. Instead we need to see whether there are any haram elements in an insurance contract. Car and appliances insurance 'normally' does not have any haram elements in them. Customer is not directly involved with riba (interest) or gambling in these kinds of insurances. Therefore there is no problem with a 'typical' car insurance.
2. Life Insurance:
Life insurance is a very clear example of buying (financial) security. In any case, since in my understanding it is usury and not modern commercial interest that is condemned by the Qur'an, therefore in principle I do not consider life insurance (of the kinds that people normally take) to be of any problems from religious point of view. The only exception is when taking life insurance exploits the insurer, which I think does not apply in the case of the typical well established, highly regulated life insurance policies in the modern economy. If there is a case where the insured knows that the life insurance can result in exploiting of the insurer then this can amount to riba and needs to be avoided.
**********
Since you may be interested to know the views of those scholars who disagree with my stance above and do consider normal interest to be riba, in the following lines I also explain an answer that is based on their view, and leave it to you to decide which view you feel to be more convincing:
Life insurance is a very clear example of buying (financial) security and has no problems from this aspect per se. When it comes to the contract, there are many types of arrangements but it seems that overall and in a broad sense, there are two types of life insurance contracts:
- Paying the money only if the policy holder dies (or develops critical illness) before the end of the term.
This does not involve fixed increase on the basis of time and therefore is not technically riba.
- Paying the money if the policy holder dies (or develops critical illness) before the end of the term, otherwise at the end of the term.
This type of contract does involve fixed increase on the basis of time since 'the end of the term' indicates when the predetermined money needs to be paid (when the policy holder survives). This is therefore clearly riba and not allowed.
Note however that even in the latter situation, the law of necessity allows a person to take life insurance, if the person thinks that it is necessary for his/her well being at the retirement age.
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November 2013
Revised: July 2016
