Life Insurance From an Islamic Perspective

Life Insurance from an Islamic Perspective
According to Dr. Monzer Kahf who is a scholar in Islamic Economics & Finance:
There are three opinions according to the contemporary Muslim scholars about
life insurance.
1. The first group of lama !iewed that the life insurance issue is a new type
of contract" which is not #nown in the history of Fi$h. A minority consider
it haram with all #inds of arguments li#e %iba" gambling" and gharar. This
!iew does not carry much weight.
&. 'ife insurance contains gharar because no one #nows whether the liability
of the insurer (the company) will e!er materiali*e nor when it will " if e!er.
This is a serious gharar that leads to a ma+or defect in the contract. It is
therefore forbidden.
,. The late -hei#h Mustafa al .ar#a argued that the gharar in the contract is
remedied by the fact that it is a contract based on o!erwhelming statistical
#nowledge and the application of the theory of probability. /ith this in
mind" there is no gharar on the part of the insurer and the contract is
permissible with two conditions: that it contains no %iba clause and that its
sub+ect (insured thing) be legitimate. These two conditions rule out regular
fi0ed return life insurance because the !alue of the policy is the outcome
of in!estment premiums at a compounded rate of interest" (while !ariable
1 return life is permissible if the funds are in!ested in the -hari2ah
appro!ed stoc#s or mutual funds). They also rule out insuring a prohibited
acti!ity such as casinos.
What is the basis of the contemporary life insurance companies?
3. The ad!ocators of the second opinion argue that the gharar problem
applies only in e0change contracts. If the contract is modified and
restructure on the basis of cooperation or mutuality" where there will be
an association of the insured instead of a profit moti!ated insurer
company" the gharar is then tolerated. This is so because the relation
between the association and its members become based on contribution or
tabarru' rather than e0change and a tabarru' can accommodate certain
conditions ( i.e." that the association compensate in case a ha*ardous
e!ent happens). 4n the basis of this all the 5Islamic insurance companies5
were established.
In this regards" al1.ar#a adds" that if a mutual or cooperati!e insurance
e0ists he prefers it to profit moti!ated insurance out of his respect to the
opinion of opponents. There is an old argument (from the 1678s)" e!en by
those who oppose insurance" that whene!er insurance is forced by law"
one must do it and one is e0cused" from the -hari2ah point of !iew. This
include car insurance" social security" wor#man compensation" and
employer2s imposed insurance if it is not optional for the employee to this
we add another element that if the insurance pro!ided by the employer is
paid completely from the employer" i.e." gi!en as a fringe benefit without
deducting any part of the premium from the pay chec#s" then it is a #ind
of grant from the employer and if a ha*ard happens the paid policy
amount is halal because the it is an outcome of the grant.