Life Insurance Sales: Halal Or Haram?

Life insurance is a contentious issue in Islam, with some arguing that it is haram because it involves gharar (buying/selling something where it is unclear whether it will be delivered or in what quantity) and riba (usury or interest). However, others argue that life insurance is halal as it is a prudent precaution and a form of risk management. Some scholars also argue that life insurance is a form of shared responsibility and solidarity among participants, providing material protection for the offspring of the deceased, which was encouraged by the Prophet.

Life insurance is haram because it involves deceit and uncertainty

Life insurance is considered haram in Islam because it involves deceit and uncertainty.

Firstly, life insurance is deemed deceitful because it involves gharar, which is a fraudulent transaction where the details of the item being sold are unknown or uncertain. This puts the buyer at risk of losing their money. In the case of life insurance, there is uncertainty about whether a payout will be made, when it will be made, and how much will be paid out. This uncertainty is further exacerbated by the fact that insurance companies may invest premiums in riba-based assets and transactions, which are forbidden in Islam.

Secondly, life insurance is considered haram because it involves chance or uncertainty, which is also present in gambling and is prohibited in Islam. The chance factor arises because it is uncertain whether an incident will occur that warrants a claim. This uncertainty is in conflict with the Islamic belief that Allah has decreed the moment of death for all human beings.

While some scholars argue that life insurance is a prudent precaution to provide for one's family in the event of death, it is ultimately seen as a form of trading or making commercial transactions about something that one does not own, as life is in God's hands.

Therefore, life insurance is considered haram in Islam due to the elements of deceit and uncertainty involved in the transaction.

It involves interest and chance

Life insurance is considered haram in Islam because it involves interest and chance. Interest is involved because the insured person pays a certain sum of money in premiums and then gets back a much larger sum if and when a payout is made. This is similar to usury, which is prohibited in Islam. The chance or uncertainty factor, which is also found in gambling, arises because it is uncertain whether an incident will occur that will warrant a claim. This is also prohibited in Islam.

The presence of these two elements—interest and chance—is enough to render life insurance haram. However, there are other factors that contribute to the Islamic viewpoint that life insurance is impermissible. Life insurance is seen as distrusting Allah's providence and not taking into consideration that He has decreed the moment of death for all human beings. It is argued that life insurance policies are not insuring against death but against the adverse material consequences of death on widows, orphans, and other helpless members of the community.

The operations of conventional life insurance do not conform to the rules of Sharia law as they may embody the elements of gharar (uncertainty) in the contract of insurance, maysir (gambling) as a consequence of the presence of uncertainty, and riba (usury/interest) in the investment activities of the insurance companies. There are unknown or uncertain factors in the operation of a life insurance contract, such as whether a payment will be accepted, how long the payment will last, and the exact amount the beneficiaries will receive. Since the insurance company may acquire all the profits if no claim is made, this operation can also be considered gharar, which occurs in any contract that is unbalanced in favour of one party at the expense of the other.

Maysir arises as a consequence of the presence of gharar. The participant contributes a small amount of premium in the hope of gaining a large sum. If the life insurance policyholder does not die within the defined period, the participant loses their contributions. If the policyholder dies after only paying part of the premium, their dependents receive a sum of money, but the policyholder does not know the amount or the origin of this money.

In conclusion, life insurance is considered haram in Islam because it involves interest and chance, which are prohibited. Additionally, it is seen as distrusting Allah's providence and contains elements of gharar, maysir, and riba, which are also impermissible according to Sharia law.

It is a form of gambling

Life insurance is considered haram in Islam because it is a form of gambling. It involves chance and uncertainty, which are also found in gambling. In the context of life insurance, there is uncertainty about whether an incident will occur that warrants a claim. This uncertainty is a form of gharar, which is prohibited in Islam.

Gharar refers to risk, uncertainty, or speculation, and it is mentioned in the Quran and hadith as being forbidden. In the hadith, the Prophet (peace be upon him) forbade transactions that involved uncertainty, such as the sale of unborn livestock or the catch of a diver.

Life insurance also involves the element of riba (usury or interest). This is because one pays a certain sum of money in premiums and then receives a much larger sum if a payout is made. This unequal exchange of money over time is considered riba and is prohibited in Islam.

Additionally, the investment activities of insurance companies may involve riba. The profits made by insurance companies are often invested in riba-based assets and transactions, which are not compliant with the rules of Shari'ah.

While life insurance may provide financial security and protection for families, it is still considered haram due to the presence of gharar and riba. Some scholars argue that the element of gharar may be tolerated if the contract is restructured on the basis of cooperation or mutuality rather than profit motivation. However, the consensus among Muslim jurists is that life insurance is haram because it goes against the trust in Allah's providence and does not consider that He has decreed the moment of death for all human beings.

It is based on profit-motivated insurance

Conventional life insurance is considered haram in Islam because it is based on profit-motivated insurance, which involves two unlawful elements: interest and chance.

Interest is involved because the insured pays a certain sum of money in premiums and then gets back a far greater sum if and when a payout is made. This is similar to riba or usury, which is forbidden in Islam. The chance factor, which is also found in gambling, arises because it is uncertain whether an incident will occur that will warrant a claim. This is similar to gharar (fraudulent transactions where the details of the sold item are unknown or uncertain), which is also forbidden.

Some scholars argue that gharar may be tolerated if the contract is restructured on the basis of cooperation or mutuality instead of a profit-motivated insurance company. However, the majority view is that life insurance is haram because it involves gharar and riba.

It is not a need-based justification

The case against life insurance in Islam is that it is not a need-based justification. It is argued that life insurance is haram because it demonstrates a lack of trust in Allah's providence and does not consider that He has decreed the moment of death for all human beings.

However, it has been argued that what is being insured against is not death, but the adverse material consequences of it on widows, orphans and other helpless members of the community. Life insurance, therefore, ensures solidarity among participants and provides material protection for the offspring of the deceased, which was encouraged by the Prophet.

Some scholars consider that gharar (uncertainty) may be tolerated when the contract is restructured on the basis of cooperation or mutuality instead of a profit-motivated insurance company. In addition, the argument that life insurance is gambling can be remedied by the fact that it is a contract based on overwhelming statistical knowledge and the application of the theory of probability.

Furthermore, it is argued that life insurance is not a need-based justification because there are alternative options. For example, one can rely on family or the community instead of insurance to deal with accidents or hardship.

Frequently asked questions