Insurance: Halal Or Haram?

There is much debate surrounding the topic of house insurance in Islam. Some Muslims believe that all insurance is haram, while others believe that certain types of insurance are permissible. The bottom line is that all insurance involves some element of riba (interest/usury). As riba is not accepted in Islam, any form of insurance that includes it is also not permissible.

Additionally, some Muslims argue that insurance is a form of gambling, which is also not allowed in Islam. However, there are many scholars who argue that insurance is not the same as gambling. They say that insurance is a contract between two parties, and there is no element of chance involved.

So, the final verdict on house insurance in Islam is that it is not permissible. If you are a Muslim and looking for a way to protect yourself and your family financially, there are other halal options available.

House insurance is haram because it involves interest/usury (Riba)

Riba is an Arabic word that means "to increase" or "to exceed" and is used to refer to unequal exchanges or charges and fees for borrowing. It is deemed haram, or forbidden, in Islamic law. This includes interest charged on loans or deposits.

All kinds of commercial insurance are clearly and undoubtedly riba. Insurance is the sale of money for money, of a greater or lesser amount, with a delay in one of the payments. It involves riba al-fadl (interest-based transaction) and riba al-nasiah (interest to be charged if payment is delayed beyond the due date). Insurance companies take people's money and promise to pay them more or less money when a specific accident happens, which is riba.

Riba is forbidden in the Quran, in many ayat. Allah has forbidden all transactions that are based on riba, and all transactions that involve deceit.

> "Those who eat Riba (usury) will not stand (on the Day of Resurrection) except like the standing of a person beaten by Shaitan (Satan) leading him to insanity. That is because they say: 'Trading is only like Riba (usury),' whereas Allah has permitted trading and forbidden Riba (usury). So whosoever receives an admonition from his Lord and stops eating Riba (usury) shall not be punished for the past; his case is for Allah (to judge); but whoever returns [to Riba (usury)], such are the dwellers of the Fire - they will abide therein." [al-Baqarah 2:275]

Riba is also forbidden because it is considered a form of 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 kinds of insurance are kinds of playing with chances. They tell you to pay a certain amount of money, and if a specific event happens, they will give you a certain amount of money. This is pure gambling.

Riba is also forbidden because it is based on uncertainty. All kinds of insurance are forms of uncertainty, and transactions that involve uncertainty are forbidden according to many sahih ahadith. All forms of commercial insurance are based on uncertainty of the most extreme kind. Insurance companies and those who sell insurance refuse to insure cases except where there is clear uncertainty about whether or not the condition being insured against will happen.

In addition, all kinds of commercial insurance consume 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.

Therefore, house insurance is haram because it involves interest/usury (Riba), which is forbidden in Islam.

It is also based on gambling (Qimar) and uncertainty (Gharar)

Home insurance is considered haram in Islam because it involves gambling (Qimar) and uncertainty (Gharar). These elements are deemed non-Sharia-compliant and are considered major sins in Islam.

Qimar refers to betting and gambling, which are prohibited in Islam. In the context of insurance, Qimar occurs when the outcome of a transaction is uncertain and left to chance, with the possibility of one party facing a total loss. For example, a policyholder might pay insurance premiums for years and receive nothing if no calamity occurs, or they could pay for a short period and then receive a large payout if a covered event occurs. This uncertainty and chance of loss or gain are inherent in the nature of insurance and are considered analogous to gambling.

Gharar, on the other hand, refers to uncertainty, deception, and risk in financial transactions. It is derived from the Arabic word 'gharra', meaning 'to deceive'. Gharar is prohibited in Islamic finance because it goes against the principle of certainty and transparency in business dealings. In the context of insurance, Gharar arises due to the unpredictable nature of events and the difficulty in quantifying the amount of damage beforehand. The policyholder's return is uncertain and dependent on unpredictable events, such as fire or theft, which introduces an element of ambiguity that is unacceptable in Islamic finance.

The combination of Qimar and Gharar in home insurance makes it haram in Islam. The uncertainty and chance inherent in insurance policies go against the principles of Sharia law, which prioritises clarity, fairness, and the avoidance of excessive risk.

Conventional insurance is a form of riba

Riba in Arabic means interest or usury. In Islam, money-for-money transactions should be done on the spot without any increase. In conventional insurance, the policyholder pays monthly premiums in exchange for a guaranteed return of a higher sum of money in the event of damage or loss at a later date. This is pure riba (interest/usury) and is one of the major sins in Islam.

There are two types of riba (interest) in Islam: riba al-Fadl (riba of a surplus amount) and riba al-Naseeyah (riba of delayed time). Conventional insurance is guilty of both types. The policyholder expects a higher return at a later date if they suffer damage or loss. Consuming or giving interest is a major sin in Islam. Allah forbids Muslims from interest/usury. The one who gives or receives interest is at war with Allah and His Messenger.

Commercial insurance is a form of riba because it involves the sale of money for money, of a greater or lesser amount, with a delay in one of the payments. It involves riba al-Fadl (interest-based transactions) and riba al-nasiah (interest to be charged if payment is delayed). Insurance companies take people's money and promise to pay them more or less money when a specific accident happens. This is riba, and riba is forbidden in the Quran.

In addition to riba, conventional insurance also involves Gharar (uncertainty) and Qimar/Maysir (gambling). These are also considered haram in Islam. Thus, conventional insurance is prohibited for Muslims under the principles of Sharia law.

It is based on nothing but gambling which is haram

House insurance is considered haram in Islam because it is based on nothing but gambling, which is forbidden in the Quran. Gambling is prohibited in Islamic law (sharia) because it is based on immoral inducement, with participants wishing to gain by mere chance, without considering the possibility of loss.

Gambling is also forbidden because it is a social disease that is addictive and destructive to personal and family lives. It makes people reliant on luck and chance instead of hard work and honest labour. It wastes time and effort, breeds hatred, causes stress and illness, and pushes people towards bad behaviour and crime.

House insurance is a form of gambling because it involves uncertainty, where the policyholder is uncertain about what they will get. They could pay insurance premiums for years and receive nothing in return, or they could pay for a short period and then receive a large payout. This ambiguity is known as gharar and is prohibited in Islam.

In addition to gharar, house insurance also involves riba (interest), which is a major sin in Islam. The policyholder pays monthly premiums in exchange for the expectation of a guaranteed higher return in the event of damage or loss. This is considered usury and is forbidden in the Quran.

Therefore, house insurance is based on nothing but gambling, which is haram according to Islamic teachings and principles.

All types of insurance are considered fraudulent transactions

Firstly, insurance involves Jahalah and Gharar. The Prophet (peace be upon him) forbade Gharar sales, which involve uncertainty, risk or speculation. In the case of insurance, the payoff is dependent on an uncertain event – accident, natural calamity, or death – which may or may not occur over the term of the contract. This is a clear example of Gharar, which is forbidden in Islam.

Secondly, insurance is a form of gambling. All kinds of insurance are based on nothing but 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).

Insurance companies themselves admit that insurance is a form of gambling. All types of insurance are kinds of playing with chances. They tell you, pay this much money, then if this happens to you, we will give you this much. This is pure gambling.

Thirdly, insurance involves Riba (usury/interest). All kinds of commercial insurance are clearly and undoubtedly riba. Insurance is the sale of money for money, of a greater or lesser amount, with a delay in one of the payments. It involves riba al-fadl (interest-based transactions) and riba al-nasiah (interest to be charged if payment is delayed beyond the due date). Insurance companies take people's money and promise to pay them more or less money when a specific accident against which insurance has been taken out occurs. This is riba, and riba is forbidden in the Quran.

Finally, insurance unjustly consumes people's wealth. All kinds of commercial insurance are fraudulent transactions aimed at consuming people's wealth unjustly. The precise statistics calculated by one of the German experts state that what people get back from what has been taken from them is no more than 2.9%.

In conclusion, all types of insurance are considered fraudulent transactions in Islam due to the presence of Jahalah, Gharar, gambling, Riba, and the unjust consumption of people's wealth. These elements are forbidden in Islam, and therefore, insurance is considered haram.

Frequently asked questions