Insurance in Islam

Insurance is considered both Halal & Haram in different asects. Insurance has many aspects this page can not discuss all the classifications of Insurance but we will try to cover basic information.

Insurance is divided into three groups

a) Compulsory or social insurance

b) Private business insurance

c) Solidarity insurance (mutual insurance, indemnity insurance).

Among the above types the 3rd type of Insurance is an organization of help and solidarity with the community hence it is permissible in nearly every sect and thought of Islam.

Insurance that is having the purpose of providing help and solidarity among the people in order to share the risks of life between each other, the first one too, is actually same with the third one. The only difference between them is that the first one is compulsory.

The insurance, which comes into gray area is, is the second, which is private business insurance. Actually, having no difference in terms of operation, such insurances have two unfavorable aspects. The first is; because of the amount of money that the insurance companies are suppose to tie up in a bank, generally they are subsidiary companies of a bank and they get interest from the collected amount of money.

And the second is charging interest to the some kinds of life insurances. Apart from that, the difference between these type of insurances and social insurances is only that social insurances are organized by government but these are organized by private sectors. And this doesn’t change the judgment. The first unfavorable case of these two doesn’t break the contract, since it is out of the terms of the contract.

It is something like that for example a grocer –that you trade with- makes use of money in an ill-gotten way. Such a contract isn’t forbidden but since it indirectly sustains undeserved earnings, it is not unobjectionable.

Allah Almighty decrees; “Help each other by fairness and piety (taqwa), but not by enmity and sin”. Therefore, if there are insurance companies which don’t include such kind of objections, we should work together with them, but if there aren’t, it can not be permissible.

But the second objection is directly interest and such a contract is completely forbidden itself. The insured person pays the premium for a length of time and pays it back with its real interest rate later. Certainly this is usury.

In conclusion, if there is an opportunity that removes such objections, then claiming that it is forbidden will have no grounds (Faruk Başer).