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The Islamic Verdict on Insurance

Prior to passing judgement on any matter, a clear understanding of the reality surrounding that matter is essential; then the Sharee’ah verdict, extracted from the Book of Allah and the Sunnah of His Messenger (SAW) (in accordance with the understanding of the Sahaabah), can be applied on that reality.

Therefore, the following topic should be divided into several sections:

1.  The origins of insurance

2.  Definition: What is insurance?

3.  Insurance terminology

4.  The types of insurance

5.  The various types of insurable risks

6.  Re-assurance

7.  The Islamic verdict on insurance

1. The origins of insurance

Researchers and historians have failed to trace the origin of the concept of insurance, and where exactly it had started. They however reckon that insurance existed in the Babylonian, Greek and Pharoanic civilisations in its basic form, and used to have a character of co-operation. Historians note that the oldest type of insurance was marine insurance which began around the 15th century.

2. Definition

Insurance is an agreement between two parties, whereby the first party undertakes to pay to the second party a certain amount of money if an accident or other detrimental event occurs within a period of time, provided the second party pays to the first party a certain amount of money or several instalments usually less than the amount that the first party undertakes to pay.

3. Insurance terminology

The first party is known as the insurance company or the insurer; the second party is known as the insured. The amount of money that the insured pays is known as the premium; the document of insurance which contains the contract is known as the insurance certificate, or the policy.

4. The types of insurance

There are several types of insurance on the market today; as for the agreements themselves, these are divided into three categories:

a) Whole life assurance: Indemnities against such claims are paid out in case the insured dies. These are three types:

· Life long agreement: Paid if the insured dies at any time

· Temporary agreement: Paid if the insured dies during a specified period of time

· Deferred agreement: Paid if the insured died after a specified period of time

b) Agreements, where indemnities are only paid if the insured survives

c) Agreements, where indemnities are paid in both cases/mentioned above

5. The various types of insurable risks

As for the risks which the insured faces, and whereby claims should be met by insurers, these are classified as follows:

General Risks

These are divided into three categories:

· Economic instability

· Political and social unrest

· Geographic and natural disasters, such as earthquakes, volcanic eruptions and floods etc.

Personal risks

These include risks that face individuals and their properties. These risks themselves are divided as follows:

a) Personal insurance

For example: life assurance, sickness and disablement insurance, unemployment insurance, personal injuries insurance, old age insurance, widows and orphans pensions’ insurance, weddings, births and other social events insurance etc.

It is worth mentioning that the last three types of insurance are merely designed to patch up the defects of the capitalist (kufr) system.

b) Properties insurance

For example: fire insurance, marine insurance, theft insurance, livestock insurance, cargo insurance, burst water pipes insurance, earthquakes and volcanic eruptions insurance, insurance against unrest, uprisings (revolutions) and wars, failed crops insurance, weather insurance, river insurance and plate-glass insurance etc.

c) Public liability insurance

For example: motor cars, planes and ships insurance; public venues insurance (cinemas, theatres, arenas, stadiums, restaurants, rallies etc.); industrial units and workshop insurance; public liability insurance for professionals and freelance workers (lawyers, doctors, chemists, architects etc.); public liability insurance for landlords against fires spreading to adjacent buildings; public liability insurance for tenants against fire to rented places; and employers’ liability insurance etc.

The practical classification of insurance is as follows:

· Life assurance

· Marine insurance

· Fire insurance

· Personal insurance such as theft, car accidents, industrial injuries etc.

As for the legal side, insurance is divided into two types:

1.  Optional; such as life assurance, failed crops insurance, livestock insurance etc.

2.  Compulsory; this mainly applying to public liability insurance, such as car insurance, plane insurance, social insurance, industrial injuries, old age insurance, medical insurance, sickness and disablement insurance, redundancy insurance etc.

The institutions that deal in and underwrite insurance are as follows:

· Exchange corporations

· Insurance companies

· Individuals (such as the “names” of Lloyd’s insurance [i.e. underwriters])

· Government corporations

· Insurance cooperatives

· Own insurers or self-insurance

· Private insurance funds

6. Re-assurance

Reassurance takes place if insurance companies or corporations that deal with it acquire a tempting contract that they cannot handle, i.e. they cannot meet the indemnity in case a claim is made; therefore, the insurer spreads the liability by reassuring the policy with other companies, and if a claim is made the insurer goes back to those companies and claims the indemnity in turn. This type of transaction is known as reassurance. The company that reassures the agreement would be the original insurer, or the first insurer, and the company that handles reassurance would be the reassurance company.

7. The Islamic verdict on insurance

Islam considers insurance as being a contract; and the point at issue is whether this type of contract satisfies the conditions of a contract in Islam before acknowledging this contract in the first place.

An insurance contract is a contract between the insurance company and the insured individual, whereby the insurance company undertakes to pay a certain amount of money as an indemnity against a loss suffered by the insured. The company has the choice between indemnifying the insured by paying him money or replacing the item itself. This compensation becomes due, and the insurance company has to pay the insured. The moment a genuine claim is made, if the company admits liability once it made sure that the claim is valid. The beneficiary of the indemnity could be the insured himself, or his wife, or his children or any of his heirs or any person or body designated by the insured in the contract.

In order to mislead people further and make the contract more appealing and tempting, they called it life-assurance or property insurance.

The reality of both types of agreement is that in the first, the insured takes a policy in order to secure a sum of money for his children or his wife or his heirs in case he dies. In the second instance, he in fact does not insure the goods nor the car in question, but he receives indemnity by having the goods or the car replaced or by being compensated in cash in case of damage occurring. Therefore, in reality it is a guarantee to cash in a sum of money for himself or for others, or a guarantee for compensation in case he dies or suffers damage to his property; therefore, it is in fact not a guarantee for his life or his property.

As for the undertaking which the insurance company gives to the insured, it is considered as security or guarantee; and in order for it to conform with the conditions of guarantee (security) in Islam, or in order for it to be a lawful security, it has to fulfil the conditions laid down by the Sharee’ah; if it did, it would be lawful, and if it did not, then it would not be considered a security (damaan).

In order for the agreement to be a security (damaan), the oaths of both the guarantor and guarantee must come together stating that the contract will be honoured; therefore, the following conditions should be met:

· Joining an oath (dhimmah) to another oath, (undertaking)

· A guarantor, a guarantee and a lender or “the owner of the guaranteed asset”

· To honour the right of the security without any conditions being laid down, or any prize being put to it

· The security must be a due amount of money, or equivalent in value, at present or at a future date, this is known as the due right, or the “would be” due right. However, the guaranteed person does not necessarily have to be known, nor does the lender, i.e. the owner; therefore, the security would be lawful even if the guaranteed (secured) person were unknown and even if the lender or owner were also unknown

As for the evidence about the security (damaan), it is a Sharee’ah evidence:

Abu Sa’eed al-Khudri (RA) reported: “We were with the Messenger of Allah [SAW] at a funeral and when we were about to pray, Allah’s Messenger asked, ‘Did the deceased have any debts?’ They said: ‘yes, two dirhams.’ Upon this, Allah’s Messenger [SAW] said: ‘Do not pray on your friend then!’ Ali [RA] upon this said: ‘They are on me, O Messenger of Allah and I am a guarantor of that amount.’ On hearing this, the Messenger of Allah [SAW] prayed on [for] the dead man, and then came to Ali saying: ‘May Allah reward you on your Islam, and may He rid you of your pawn as you freed that man of his.’ They asked: ‘O Messenger of Allah, does this apply only to Ali or to all People?’ He [SAW] replied: ‘It applies to all people’.”

It is clear from this hadeeth that the security consists of the following:

· Joining the liabilities of both Ali (RA) to that of the dead man

· The undertaking by Ali to fulfil (pay, honour) the due amount to the lender

· There was a guarantor who was Ali, and a guaranteed person, who was the dead man, and a “guaranteed for” person, who was the lender

· The undertaking by Ali to honour the right of the lender and pay the money which was on the neck of the dead man, without anything in return

From the above mentioned conditions, we conclude the way in which the security is contracted, and the rules that have to be observed in order to make the security lawful and acceptable to the Sharee’ah. Briefly, we shall look at the conditions that make insurance lawful from two sides:

1) The conditions of contract

2) The conditions of legitimacy (validity)

1) The conditions of contract

The contract should satisfy all the conditions laid down by Sharee’ah before describing it as a lawful contract. According to Sharee’ah, the contract should consist of (include) either goods or benefit; if it did not include either, then it would be considered null and void, for it would not have contained anything that makes it a lawful contract. This is so because the contracts in Islam are of four types:

· A contract on goods in exchange for a return (compensation), like in the sale of a car, whereby the car would represent the goods and the money would represent the return or compensation or recompense.

· A contract on goods without any return, like in the handing out of the car with no return (money); or like in the gift (hibah).

· A contract on a benefit or service in exchange for a return, like rentals. Renting a house would represent the benefit; the return would be the money gained for supplying the service.

· A contract on a benefit without any return, like in the borrowing without a fee.

Looking closely at the reality of insurance, we conclude that it does not cover any goods, nor does it cover any benefit; it is merely a contract based on an undertaking, i.e. a security. The undertaking and the security is not considered as goods or service (benefit), they cannot be consumed and no benefit is generated from such contracts. Therefore, the conditions of contract are unlawful according to Sharee’ah, for the lawful conditions of contract have not been fulfilled.

2) The conditions of legitimacy (validity)

As for the conditions that have to be fulfilled for the contract of insurance to be legitimate, they are as follows:

· The joining of two oaths (liabilities) should be included in the contract.

· A fixed amount of money should be made available by right to the insured when the contract is signed with the insurance company.

· This amount of money should be due and made available to the insured the moment the contract is signed with the insurance company.

· A guaranteed party must be nominated in order for the insurance to be lawful.

· The undertaking of the insurance company to replace the item or to pay the equivalent in money should be made without any return i.e. premium, for is its undertaking is linked to a return (money) paid by the insured, the contract becomes unlawful.

It is clear that a security contract must be free and no money should be expected in return. Therefore, it is also clear that the insurance contract does not fulfil the conditions of security that Sharee’ah has imposed, and it also lacks the conditions of contract and the conditions of validity essential for a security contract. Therefore, the insurance policy is considered invalid and unlawful in the first place, and as a contract, all types of insurance are unlawful according to Sharee’ah, whether this is life assurance or property insurance to motor car insurance, or third party or comprehensive insurance. It is an unlawful contract and an unlawful undertaking, and any money gained as a direct result of such a contract and such an undertaking would be unlawful (haraam), and would be considered illicit earnings.

Answers to some errors

Some may claim that an insurance contract is the same as a purchase contract. In answer to this, we say: It is widely known in jurisprudents that one of the causes which invalidate the purchase contract is not knowing the seller or the price to a point where its outcome would lead to a dispute, or imposing conditions that form no part of the contract and lead to; excessive benefit to one of the contractors which Sharee’ah has not disclosed to be lawful; Sharee’ah has considered such excess of benefit (earnings) as one type of usury (ribaa). Sharee’ah has also stressed the prohibition and unlawfulness of any contract which earning from it is linked to risk or betting (lottery) or to gharar (hazard); scholars defined gharar as being anything that held two possibilities or anything which we know not its outcome, as is the case in the insurance contract.

As for those reckless and thoughtless who have got used to ill gains and earnings for gambling, betting and lottery, as in the case of that who buys the contents of the fish net before it is brought to the surface and without prior knowledge of what is in it, or as in the case of someone throwing a stone at a load of goods, and then buying the goods where the stone has landed without any say, such contracts and such sales are those of the days of ignorance (jaahiliyyah) and Sharee’ah has forbidden them due to the elements of gambling in them. Besides, the insurance contract contains many invalidating aspects such as the absence of a lawful return and the ignorance of the security.

It would be wrong to claim that the safety and peace of mind that the insured person feels could be considered an a return; for peace of mind is not really money, nor is it mentioned anywhere, therefore according to Sharee’ah, it cannot be considered as a return as is the case in the usury transactions whereby people claim that the time given to the borrower to pay back the loan is considered a return, and that is also baseless and totally forbidden.

Therefore, it is forbidden for the Muslim to insure his goods, his life, or his properties, and to benefit from an insurance contract.

Finally, we say: Insurance in all types is forbidden, not forgetting that this is just one of the filthy and rotten schemes of the capitalist (kufr) system, which we ask Allah (SWT) to make its downfall and disintegration very near, to be replaced by the khilaafah system, which is the system of the Lord of the universe. And Allah (SWT) is capable of everything.

From thesavedsect.com