Before knowing the Fatwa on Life insurance in Islam, we need to know the meaning of insurance, so let’s first briefly understand it.
The literal meaning of insurance: the word Bema is used in English for insurance, and in Arabic, it is called tamin. All three of these words, Bema insurance, mean “assurance.”
Terminological definition: The name of an agreement between the insured parties in which one party (insurance company) and the other (insurer) is responsible for paying a fixed amount in the event of an unknown loss.
In return, the other party pledges to pay a fixed amount in premiums until an unknown loss occurs.
The Beginning of Insurance
- Insurance was started by Italian merchants in 1400.
- The same method was used in England in the seventeenth century to help the sick.
- In the eighteenth century, merchants formed their associations, and a joint fund assisted any business community member involved in an accident.
- However, the oldest maritime insurance in England is dated 1547.
Types of Insurance
- Life insurance
- Property insurance
- Organ insurance
- Home Insurance
- Liability insurance (such as children’s education and marriage, etc.)
- Insurance of valuable papers and certificates
- insurance coverage
- insurance groups
- vehicle insurance
- motorcycle insurance
- personal insurance
- business insurance
Life Insurance Procedure
Suppose a person wants to insure his life. In that case, the procedure is that the insurance company’s doctor estimates his life so that this person is physically able to live for such a period, for example, twenty years. Once he is satisfied, an agreement is reached between the insurance company and the insured.
The insured pays the insurance company in installments by dividing the amount he wants to insure into annual installments.
After a certain period, the amount is returned to him or his family under the condition and some additional amounts are given along with the original amount at the fixed rate percentage. This amount is called a bonus.
life insurance in islam
Life insurance is a beneficial scheme by which a citizen can secure his and his children’s economic future.
That’s all right. Considering this, ordinary scholars have declared it permissible. Even the Supreme Imam Ahmad Raza Khan Hanafi Qadri (may Allah have mercy on him) has declared it permissible.
Evidence of proposed insurance
- In this way, human wealth is preserved and increased.
- The world is a hotbed of accidents. Damage can be compensated in case of accidents.
- It is difficult for a poor man to save money in all circumstances. A small amount of money from an insurance policy is used to support orphans and widows and help them in difficult times.
- It is a servant humanitarian system that aims to help the poor and needy.
- Islamic law greatly emphasizes cooperation in community life, so insurance is a legal and regulated form of collaboration.
- After a person dies, their survivors receive financial support.
- In the event of an accident, human capital is protected.
Is life insurance halal in Islam?
Life insurance is halal if insurance is being done in the following ways:
- The insurance company invests in the principles of Musharakah and Mudarabah.
- The person who fails to pay the remaining installments by depositing two or three installments should be reimbursed; however, the expenses should be deducted from it. If the insurance holder dies at some stage after paying one installment, they will be reimbursed as per the agreement.
- The insurance company should declare the insurer’s shareholders, and their capital should be declared shares. The average profit of their shares should be given to them. However, the company can set its commission.
- The government should take the insurance companies into its custody.
Life Insurance is valid in case of an Emergency.
There are many institutions in the name of life insurance. A few Requests are submitted. Almost all of our banking business is run on interest. Government, semi-government, or private companies, institutions, or individuals raise funds from the people.
To encourage them to pay large sums of money through rewards, bonuses, and accidents, they raise money from the people and lend the same amount to prominent business people or manufacturers at higher interest rates for business.
From the interest they get from there, they also cover their expenses, and from the rest of the money, they pay the account holders in the name of bonuses, etc. All these businesses are based on the principle of interest, haraam.
If insurance or other institutions invest the capital taken from the people in the fields of industry, trade, agriculture, etc., on the Islamic principles of profit and loss sharing, then the profit will be higher than the interest, and halal provision will be available.
But it is a pity that the agents of imperialism openly declare war on our rulers, God and His Messenger (peace be upon him), take this capital on usury and run it on usury, and feed the Muslims with haraam. Since the insurance holders do not pay their money in interest, it is permissible to have insurance, insurance, etc., in every way.
What is the Difference Between Insurance and Interest?
Understanding the legal definition of interest is first necessary to clarify the difference between interest and insurance.
Interest is called Riba in Arabic. In the dictionary, Riba means excess, increase, and height.
Riba Means
There are two types of Riba:
- Riba al-Fadl: The excess and increase that is obtained by exchanging homosexual things. For example, if two kilograms of barley is taken in exchange for one kilogram of barley
- Riba al-Nasiyyah: A loan that is given on the condition that (the borrower) repays (the lender) more than the original amount
Abu al-Qasim al-Hussein ibn Muhammad Isfahani has defined usury in these words: Abuse of real wealth is called interest. Not every excess in the Shari’ah is called interest; only the excess that is conditional is interest. It is permissible to give something to someone unconditionally, but not interest.
Life Insurance Means
Life insurance means that the person himself or his property can be involved in an accident at any time, God willing, as a result of which his survivors, such as his parents, wife, and children who were under his care under normal circumstances, will be poor.
They will suffer from hunger and serious financial, economic, and social problems. Because insurance is provided by the government or its authorized companies, they receive a fixed amount of insurance from the affected person, persons, or entity for a fixed period.
The company pays a fixed compensation if the person or thing dies during the contract. If the person or thing is safe for a specified period, the company pays more or less than double the amount deposited. There is no gambling and no interest.
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Fatwa on life insurance in Islam
There is nothing wrong with insurance, whether it is life, property, or business insurance. It is an agreement between an individual and an insurance company in which the individual will pay the insurance company in installments, which will not be a loan.
Instead, it will be given to help others on the promise of one’s help. The insurance company will pay the amount to the individual when the default requirement or due date is met. The company raises capital by investing people’s savings in business and adds a percentage of this growth to people’s money.
Since there is no direct interest, gambling, etc., in this whole matter and the insurance holder has not entered into any agreement with the company in which there is any Shariah obscenity, in our view, this business is valuable and permissible.
It is commonly said about life insurance companies because these companies increase their capital by investing premium money in interest-bearing businesses; insurance is illegal. If they invest these amounts in interest-bearing enterprises, the answer is that insurance companies do so based on their ‘right to use.’ No liability is imposed on the insurers.
They can also invest in legitimate projects such as agriculture, trade, industry, etc., in accordance with Shariah principles and in haraam sectors such as usury, gambling, and pornography. The issue of legitimacy and illegitimacy is up to the company concerned.
Insurance holders are not directly involved in any illegal activity. In the case of the insurance for which it is arranged, whatever is received is received from the money deposited by others under the agreement. Therefore, the amount received under the insurance contract cannot be considered interest.
It is permissible to take out insurance because it is not an abomination but provides financial protection. Similarly, employment in an insurance company is also legal. However, insurance companies must be told to spend their money on halal work.