Is insurance halal or haram?
Many Islamic scholars have debated this question, and many Australian Muslims have wondered how the question relates to their own lives.
In Australia, insurance is a normal part of life for many. But Muslims need to be sure that they commit to this option without compromising their core values and beliefs.
This article offers a balanced and fact-driven analysis of whether insurance is halal or haram. We will cover all the major Islamic concepts related to this question, including takaful, riba, gharar, and maysir. Let’s begin!
The Key Concepts
Before we can tackle the big question of whether insurance for Muslims is halal or haram, we need to understand the debate’s central concepts. From the perspective that insurance might be haram, the critical terms are riba, gharar, and maysir.
We will deal with these concepts first before moving onto takaful, an Islamic concept that is used much more in the argument for insurance being halal.
The concept of riba translates into English as interest. It is often also referred to as usury. In essence, it means lending money and being repaid a greater amount at a later date.
The Koran is quite straightforward on the concept of acquiring interest: it is haram.
While riba is clearly forbidden under Islamic law, it is a different question about whether insurance does actually constitute interest. But to answer this question, we need to examine the other concepts involved.
The answer to this question is not so clear. It depends on the type of insurance being used and a greater understanding of the financial structure of insurance. So, we will return to this shortly.
Gharar is an Islamic concept that relates to the English concepts of uncertainty, deception, and risk. It is derived from the hadiths rather than the Koran.
It is easy to see how insurance constitutes uncertainty. When you take out insurance on a car, a home, or a business, you are doing so because you are uncertain about how future risks may affect those things.
However, gharar is forbidden in Islamic law because Muslims are supposed to engage in open and honest business transactions. Traditionally, gharar was used to forbid activities such as selling things like crops that had not yet harvested or animals that had not yet been born.
The concept is summed up in the words of the 20th Century Islamic scholar Abd al-Aziz ibn Baz, who said: ‘Do not sell that which you do not possess’.
Understandably, Islam would forbid such transactions because they can lead to parties being aggrieved about the result of their purchase. For example, a calf may be born ill and die just days after its birth.
As with riba, the application of this Islamic concept to modern insurance is not completely clear.
Maysir translates into the English concept of gambling. However, it is more general than the concept of qimar, which directly relates to games of chance.
Maysir is prohibited under Islamic law because a person may gain benefit from something without any effort on their part. For example, in his book Islamic Finance for Dummies (2012), Muslim scholar Faleel Jamaldeen defines Maysir as ‘the acquisition of wealth by chance (not by effort)’.
A further reason why Maysir is forbidden is found in the Koran (5:90-91). Here, it is grouped with alcohol as haram because both of them ‘arouse discord and hatred among you’ and also ‘deter you from the mention of God and prayer’.
This second meaning seems to be less relevant to the practice of buying and selling insurance. As to the first reason, the application is disputable. Arguably, insurance does not represent the acquisition of wealth but rather the restoration of something that has been lost.
Takaful is an Islamic concept that provides strong support for at least some models of insurance. Takaful roughly translates into English as solidarity. But it has a much more precise meaning in the context of Islamic law.
The idea of takaful is that members of a community contribute to a common fund, which is then used to reimburse members of the community who experience some loss. For example, the group may pay to have a member’s house rebuilt if destroyed in a fire.
In this way, takaful is very much a kind of insurance that is halal under Islamic law.
The scriptural basis of takaful is found in both the Koran as well as the hadiths. In the Quran, the evidence is usually derived from verse 5:2, which contains the instruction: ‘And cooperate in righteousness and piety, but do not cooperate in sin and aggression.
Therefore, the moral basis of takaful is in community cooperation, including underlying principles of charity and compassion.
The Arguments For and Against
With these concepts now understood, we can approach the larger question of whether insurance is, in fact, haram or halal. To do this, we will summarise the arguments for both sides of the debate.
The Haram Argument
On the haram side of the debate, there is clear scriptural and scholarly instruction that modern insurance practices are haram. Namely, insurance implies some form of usury (riba), uncertainty (gharar), and gambling (maysir).
Although the ancient scriptures of Islam obviously do not speak of modern financial practices directly, the argument against insurance is based upon broader moral principles.
Therefore, many financial institutions may well offer insurance products that are, in fact, haram. So, Muslims should investigate the specifics of these kinds of products and make sound judgments on these products’ specifics.
In particular, Muslims should seriously consider the intent of such insurance contracts.
Are these insurance products based upon the idea that one person will make a profit from others? Do these companies intend to gamble on the fortunes of their customers? How open and honest are these companies in their offering of insurance.
For many modern financial institutions, the answers to these questions will conclude that the product being offered is haram.
The Halal Argument
From one perspective, it is possible to argue that an individual paying for insurance is not breaching the three relevant moral principles cited above. This is because their intention in purchasing insurance may be to provide security for their family. They do not seek to acquire wealth through their purchase but merely want to guard against unforeseeable loss.
However, a stronger argument for the idea that insurance is halal can be made for those types of insurance products that embody the takaful principle.
If Muslims wish to make sure they make halal financial decisions, it is best to engage with organisations with a genuinely community-oriented intention in what they offer. Such organisations will be honest and open in their dealings and not seek to make an undue profit.
Their primary intention should be to support members through hardship rather than to profit from them. Likewise, Muslims using such organisations should honestly view their insurance contributions as charitable donations to assist their community. In the same way, Muslims should be mindful of whether other financial decisions they make according to these principles.
A further option for halal insurance is for smaller groups of Muslims to organise their own community insurance forms. This would perhaps be the surest way of maintaining halal practices because members of the group would have full control over the contributed funds.
Is Insurance Haram or Halal?
The answer to this question is, as is so often the case, ‘It depends’. Whether insurance is halal or haram depends upon the specific insurance product being offered and the organisation it is being offered from.
Many modern financial institutions’ insurance products are likely to be considered haram by traditional Islamic scholars.
However, this is not to say that there is an absolute consensus on the matter. This is primarily because, from a moral perspective, there is a difference between selling insurance and buying insurance. The biggest factor is the intention of the parties involved.
On the other hand, certain forms of insurance are entirely halal. There is strong scriptural support for insurance based on charity, fairness, and community support principles.
This type of insurance would be classed as takaful, and Muslims should feel comfortable engaging in this practice to protect both their own families and others in their community.
Take Ownership of Your Financial Decisions
Hopefully, you should now have a good understanding of the debate about whether insurance is halal or haram. You should also now have a strong grasp on the key concepts: riba, gharar, maysir, and takaful.
But perhaps the biggest lesson to take away from this debate is the importance of being considerate when making your financial decisions. It is all too easy to go along with the flow in the modern world and not consider our actions’ moral implications.
By taking the time to stop and consider what we do with our money and how it affects those around us, we can be sure that we act in a fair, responsible, and compassionate manner to ourselves, our families, and our communities.
If you would like to learn more about how you can make morally responsible financial decisions, why not get in touch with us today?
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