This article outlines briefly the Shari’ah ruling on Life Insurance.
Insurance of any type is basically the sale of money for money, of a greater or lesser amount, with a delay in one of the payments. It involves riba or interest and riba is forbidden in the Qur'aan, in many verses. Riba is giving a fixed sum of money in return for a greater sum without running any risks, nor involving any physical work or service. This definition is found in insurance. Furthermore, insurance also comprises the principle of gambling, which is also Haraam according to the Qur'aan:
“O you who believe! Intoxicants (all kinds of alcoholic drinks), and gambling, and Al‑Ansaab (stone altars for sacrifice 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) All kinds of insurance are kinds of playing with chances. One never knows when and how much one will earn from an insurance payout. As in gambling, when a bet is placed, one is never certain as to the amount of money to be paid back, likewise in insurance one is not sure of the payout.
All kinds of insurance are forms of uncertainty, and transactions which involve uncertainty are forbidden according to many saheeh Ahaadeeth, such as the Hadeeth narrated by Abu Hurayrah (may Allah be pleased with him):
“The Messenger of Allah (peace and blessings of Allah be upon him) forbade transactions determined by throwing a stone and transactions which involved some uncertainty.” (Narrated by Muslim).
[“Transactions determined by throwing a stone” – this was a type of transaction that was prevalent in the markets of pre-Islamic Arabia, whereby a stone was thrown by either the buyer or the seller, and whatever it touched, its transaction became binding. “Transactions which involved some uncertainty” – is a transaction in which there is no guarantee that the seller can deliver the goods for which he receives payment.
All forms of commercial insurance are based on uncertainty of the most extreme kind. It may be argued that life insurance is different in the sense that death is certain for every human being. Our answer would be that while the occurrence of death is certain, its exact date is not known and this is enough to render the policy Haraam. The hadith prohibits fixing payment for an item “on the day a certain person arrives”, The arrival of that person is certain, yet the transaction is not valid because his exact date and time is uncertain.
Islam has awarded human life great prestige and honour. It is contrary to Islamic teaching to dishonour human life by subjecting it to monetary value and commercial interests. Hence from this angle too, life insurance is not permissible.
If a person had, out of ignorance, taken out a policy and was paying premiums then it is only permissible for him to take back whatever he had paid in premiums, and not permissible to use the excess which the insurance company normally pays out. Such money is Haraam and must be given out to charity as a compulsory measure.
