Life Insurance: Halal Or Haram According To Hanafi School

The permissibility of life insurance is a contentious issue within Hanafi Islam. The default legal ruling is that life insurance is impermissible due to its elements of interest and chance, which are prohibited in the Qur'an. However, scholars have outlined exceptions, such as when insurance is legally required to use a commodity like a car, or when not having insurance would cause clear and overwhelming hardship, like medical insurance in America. Some scholars argue that life insurance is a form of gambling, as policyholders may lose all instalments if they fail to pay, while others allow it when run by the government without personal loss.

Life insurance is impermissible due to elements of interest and chance

Life insurance is impermissible in Hanafi Islam due to its incorporation of elements of interest and chance, which are prohibited in the Qur'an.

Insurance of any type is considered the sale of money for money, with a delay in one of the payments. This involves riba, or interest, which is forbidden in the Qur'an. Riba is defined as giving a fixed sum of money in return for a greater sum without running any risks, nor involving any physical work or service.

Additionally, insurance is also considered a form of gambling, which is also forbidden. In gambling, one is never certain about the amount of money to be paid back, and similarly, in insurance, the payout is uncertain. All forms of insurance are thus considered to be based on uncertainty, which is forbidden according to several saheeh Ahaadeeth.

Life insurance is also impermissible because it places a monetary value on human life, which contradicts the teachings of Islam, which awards great prestige and honour to human life.

However, there are a few exceptions to the rule regarding insurance. In cases where the law mandates insurance for certain commodities, such as a car, or where there would be overwhelming hardship without insurance, such as medical insurance in America, it may be permissible to fulfil the legal requirement and alleviate potential hardship.

Life insurance is qimār (gambling)

Moreover, life insurance is considered playing with chances, as one never knows when and how much one will earn from an insurance payout. This uncertainty is against the teachings of Islam and is deemed haraam.

The Noble Prophet of Allah, as mentioned in the Hadith, said, "Every debt that brings about a benefit, so it is ribā (interest)," indicating that life insurance, which involves receiving benefits beyond the initial debt, is prohibited.

Additionally, life insurance policies are regarded as a debt with interest. If a policyholder fails to pay premiums, the insurance company keeps the instalments already paid, resulting in a loss for the policyholder. This loss is further emphasised when the policy is terminated before the designated period, resulting in the forfeiture of all paid instalments.

In summary, life insurance is considered qimār (gambling) due to the inherent uncertainty and risk involved, which goes against Islamic teachings. It involves receiving benefits beyond the initial debt, which is deemed as interest and is prohibited. The potential loss and involvement of interest further reinforce the notion that life insurance is a form of gambling and, therefore, impermissible according to Islamic law.

Life insurance is permissible in non-Muslim countries with certain conditions

In the Hanafi school of Islamic thought, the default ruling on conventional insurance is that it is impermissible due to its elements of interest and chance, which are prohibited in the Qur'an. However, there are certain exceptions and conditions under which life insurance may be permissible for Muslims in non-Muslim countries.

Firstly, in non-Muslim countries, life insurance may be permissible if the law of that country makes it compulsory to have insurance for certain activities. For example, in some countries, it is a legal requirement to have car insurance in order to drive. In such cases, it is permissible to take out insurance to fulfil this legal obligation.

Secondly, life insurance may be permissible if there would be clear and overwhelming hardship in not having insurance. For instance, in countries with high healthcare costs, medical insurance could fall under this exception.

In addition to these two general exceptions, there are further specific conditions that must be met for life insurance to be permissible for Muslims in non-Muslim countries. These include:

• The life insurance company must not have any Muslim owners, partners, or shareholders. This is because, in Islam, insurance is considered a form of gambling, which is prohibited. If there is even one Muslim partner in the company, the dealing is considered absolutely haram.
• A Muslim should be certain that the insurance policy will be beneficial for them. They should have a strong opinion that they will be able to pay the necessary instalments for the designated period stated in the contract. If a Muslim enters into an insurance contract and then terminates it before the minimum period is completed, they will lose all the instalments they have paid, which is considered a loss in Islam.
• A Muslim should not be forced into any disobedience due to this undertaking. This means that the insurance policy should not require them to do anything that goes against Islamic teachings or the Shariah law. For example, it should not require them to forgo fasting or Hajj.

In conclusion, while the default ruling on conventional insurance in Hanafi fiqh is that it is impermissible, there are certain conditions under which life insurance may be permissible for Muslims in non-Muslim countries. These include legal requirements, hardship considerations, and specific conditions related to the insurance company and the individual Muslim's circumstances.

Exceptions to impermissibility: legal requirements and overwhelming hardship

In Hanafi Fiqh, the default legal ruling on conventional insurance is that it is impermissible due to its elements of interest and chance, which are prohibited in the Qur'an. However, there are two exceptions to this rule:

Legal Requirements

The first exception is when the law of the land mandates insurance for the use of a particular commodity, such as car insurance. In such cases, it is permissible to obtain insurance to fulfil the legal requirement and avoid any potential hardship. This exception is supported by scholars like Mufti Saeed Palanpuri and Shaykh Ali Qurra Daghi.

Overwhelming Hardship

The second exception is in cases of clear and overwhelming hardship, such as medical insurance in countries like America. Here, insurance is permitted to the extent required to alleviate the potential hardship. This exception also applies to travel insurance for those travelling to destinations with a high likelihood of encountering extreme hardship, such as war-torn countries.

While these exceptions provide some flexibility, it is essential to remember that the types of permissible insurance may vary across regions. For example, while medical insurance may be a necessity in America, it may not be the case in Britain.

The majority of scholars reject the opinion that all insurance is halal

Insurance of any type is essentially the sale of money for money, with a delay in one of the payments. It involves riba or interest, which is forbidden in the Qur'an. Riba is giving a fixed sum of money in return for a greater sum without running any risks, involving any physical work, or providing any services. Insurance also comprises the principle of gambling, which is also forbidden according to the Qur'an.

All forms of commercial insurance are based on uncertainty of the most extreme kind. Even in the case of life insurance, while death is certain for every human being, the exact date is unknown, and this is enough to render the policy haram. Islam has awarded human life great prestige and honour, and it is contrary to Islamic teaching to dishonour human life by subjecting it to monetary value and commercial interests.

There are, however, two exceptions to the rule that conventional insurance is impermissible. The first is when the law of the land makes it a requirement to have insurance, such as car insurance. The second is when there would be clear and overwhelming hardship in not having insurance, such as medical insurance in America. In these cases, it is permitted to take out insurance to fulfill legal requirements and to the extent required to lift any potential hardship arising from not being insured. This is the opinion held by scholars such as Mufti Saeed Palanpuri and Shaykh Ali Qurra Daghi, among others.

While some scholars, such as Shaykh Mustafa Zarqa, have allowed conventional forms of insurance, the majority of scholars reject this opinion on principled grounds.

Frequently asked questions