Islamic Law: House Insurance Compliance

There is debate among Islamic scholars about the permissibility of house insurance. Some scholars argue that it is impermissible due to the presence of contractual uncertainty, which amounts to gambling, and the element of interest, which is forbidden in Islam. On the other hand, some scholars argue that insurance is permissible as it provides certainty and protection against unpredictable events. They also highlight the importance of insurance in the modern world, especially for businesses and the overall economy. The debate centres around the interpretation of Islamic principles and their application to contemporary contexts.

Conventional home insurance is unlawful in Islam

Conventional home insurance is considered haram, or unlawful, in Islam due to its inclusion of several elements that are forbidden according to Shariah law. These include gharar, khatar, qimar, maysir, and riba. Gharar refers to uncertainty or risk, which is inherent in insurance contracts as the liability of the insurer is uncertain. Khatar refers to the idea that the gain of one party is dependent on the loss of the other. Qimar and maysir relate to the gambling aspect of insurance, where monetary gains are a result of chance rather than real activity. Finally, riba refers to interest or usury, which is present in insurance when a person pays a premium and may receive a larger amount in return.

The majority of Muslim scholars agree that conventional home insurance is unlawful due to these forbidden elements. However, in the absence of lawful alternatives, some dispensation has been allowed in certain circumstances, such as during times of civil and political unrest or in highly litigious societies, to protect Muslims from potentially unbearable losses.

With the development of the Islamic finance sector, lawful alternatives to conventional insurance, including home insurance, are now available. As a result, Muslims are encouraged to resort to these Sharia-compliant options instead of conventional insurance.

Islamic life insurance policies, for example, are based on the principles of takaful, which is a form of insurance compliant with Sharia law. Takaful involves the pooling and investment of funds, with policyholders considered joint investors with the insurance operators. There is no guarantee of a positive return, and any profits are shared among the vendors and policyholders. By eliminating elements of uncertainty, gambling, and interest, takaful-based insurance is deemed permissible and provides financial protection alongside long-term savings.

Muslim scholars have allowed dispensation in times of civil and political unrest

While conventional home insurance is considered haram in Islam due to its unlawful elements, Muslim scholars have allowed dispensation in times of civil and political unrest. This is because, during such periods, the homes and businesses of Muslims are under constant threat, and there is an absence of lawful alternatives for protection.

The Islamic finance sector has evolved significantly, introducing lawful alternatives to conventional insurance, including home insurance. With these alternatives now available, it is no longer considered permissible to resort to conventional insurance. However, in the past, Muslim scholars have made exceptions during times of civil and political unrest to safeguard the Muslim community from potentially unbearable losses.

Muslim scholars acknowledge that conventional home insurance violates the dictates of Shariah in several aspects. It involves gharar, which refers to the uncertainty of the insurer's liability. Additionally, it includes khatar, where the insured's ownership of the sum insured is contingent, and qimar, where the gain of one party depends on the loss of the other. Conventional home insurance also entails meysir, where monetary gains result from chance, speculation, and conjecture rather than real activity. Lastly, it involves riba, with excess on one side in the exchange of premiums and the sum insured.

Despite these violations, Muslim scholars have shown flexibility during challenging periods marked by civil and political unrest. This dispensation aims to provide temporary relief and protect the well-being of Muslims facing constant threats to their homes and businesses.

Commercial insurance is haram in Islam

Commercial insurance is a form of riba as it involves the sale of money for money, with a delay in one of the payments. This is forbidden in the Quran, where riba is referenced in many ayat.

Commercial insurance is also based on gambling, which is haram according to the Quran:

> "O you who believe! Intoxicants (all kinds of alcoholic drinks), and gambling, and Al-Ansab (stone altars for sacrifice to idols etc.) and Al-Azlam (arrows for seeking luck or decision) are an abomination of Shaytan’s handiwork. So avoid (strictly all) that (abomination) in order that you may be successful." (al-Maidah 5:90 – interpretation of the meaning).

All types of insurance are forms of gambling with chances. For example, an insurance company may say, "Pay this much money, then if this happens to you, we will give you this much." This is comparable to pure gambling.

Insurance is also based on uncertainty. All kinds of commercial insurance are based on uncertainty of the most extreme kind. Insurance companies refuse to insure cases unless there is a clear uncertainty about whether or not the condition being insured against will happen. This transaction involves something uncertain, such as when an accident will occur and the extent of the damage caused. Hence, insurance combines three types of extreme uncertainty.

Commercial insurance also consumes people's wealth unjustly, which is haram according to the Quran:

> "O you who believe! Eat not up your property among yourselves unjustly" (al-Nisa 4:29 – interpretation of the meaning).

All forms of commercial insurance are fraudulent transactions aimed at consuming people's wealth unjustly. German experts state that what people get back from what has been taken from them is no more than 2.9%.

It is important to note that some people argue that insurance is not the same as gambling. They believe that insurance is a contract between two parties, and there is no element of chance involved. However, the majority view among Muslim scholars is that conventional insurance is unlawful.

The basic principle of mitigating loss by pooling wealth is permissible

However, commercial insurance, which involves paying a premium in exchange for financial protection against specified risks, is generally considered haram in Islam due to its resemblance to gambling and usury. It also involves elements of uncertainty and can lead to the unjust consumption of people's wealth.

On the other hand, cooperative or mutual insurance, where a group of individuals pool their resources to provide financial assistance to those in need, is seen as a form of charity and mutual support. This type of insurance is considered permissible as long as it does not involve interest or other prohibited elements.

Some Muslim scholars argue that commercial insurance can be permissible in certain circumstances, such as when there is a genuine need or when there are no lawful alternatives. Additionally, in non-Muslim lands, some scholars allow Muslims to engage in commercial insurance if it is required by law or if there are no Islamic alternatives available.

Overall, while the principle of pooling wealth to mitigate loss is permissible, the specific application of commercial insurance is generally viewed as haram due to its resemblance to prohibited acts and its potential for causing harm.

Conventional insurance involves riba (interest), gharar (uncertainty) and maysir (gambling)

Conventional insurance is considered haram (forbidden) in Islam because it involves the elements of riba (interest), gharar (uncertainty), and maysir (gambling). These elements contradict the principles of Shariah (Islamic law) and are deemed unethical and exploitative.

Riba, or interest, is defined as "excess, increase, or addition". In the context of insurance, riba occurs when there is an excess or discrepancy between the amount of premium paid by the customer and the sum covered or received. This direct involvement of riba is considered unethical as it implies unequal values being exchanged. Additionally, insurance companies often invest customers' funds in interest-bearing businesses, leading to indirect involvement in riba.

Gharar, or uncertainty, is another element present in conventional insurance. It refers to excessive uncertainty, where one party may gain profits while the other does not. In the case of insurance, the policyholder enters into a contract with uncertain liability and rights. If the insured event does not occur, the insured loses their money, and the insurer remains uncertain about their potential liability. This uncertainty violates the Shariah principle of avoiding undue risk.

Maysir, or gambling, is also inherent in conventional insurance. It occurs when the profit of one party depends on the loss of the other. Monetary gains in insurance are based on speculation and the occurrence of insured events. If the insured event occurs, the insurance company covers the loss, but if it does not, they keep the premium as profit. This creates a situation akin to betting or gambling, where the prospect of "chance profit" encourages risk-taking.

Overall, conventional insurance, with its involvement in riba, gharar, and maysir, is seen as incompatible with Islamic principles. Muslims are advised to opt for Shariah-compliant alternatives, such as Takaful, which is based on cooperative and mutual principles.

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