What is the ruling on insurance, and what is the ruling on Islamic insurance?

Question : This questioner, Salah al-Din, says in this question: We have heard your fatwa prohibiting insurance in one of the episodes of this program. My question is: Is there such a thing as Islamic insurance? It is known that there are some Islamic insurance schemes in certain countries that operate on the idea of insured persons helping one another with the disasters that befall any of them. At the end of the year, the insurance surplus is returned after calculating the reserve fund to cover the risks of the coming year. The amount distributed from the insurance value is called the insured person's contribution to his brother who suffered the disaster. Please guide us in light of this question.

Answer : In the name of Allah, the Most Gracious, the Most Merciful. Praise be to Allah, Lord of the worlds, and may Allah send prayers and blessings upon our Prophet Muhammad, his family, his Companions, and those who follow them in excellence until the Day of Judgment. The criterion for forbidden insurance is that a person is between being a gainer and a loser. As for cooperative insurance, where people gather and set up a fund into which they place contributions to help the afflicted among them and others, there is nothing wrong with this. This is not called insurance; rather, it is called cooperation. What the questioner mentioned falls under the category of the forbidden, as I see it, because if the year ends and the remainder is distributed, some people will be gainers and some may be losers. This is because what was spent during the year as compensation for accidents may come from a person who did not suffer any accident at all, making him a loser. It is also possible that the surplus is returned to a person who suffered many accidents, more than what he paid in insurance several times over.
People are in no need of such matters. If they were to adopt what we mentioned first, namely that a group of people—whether the people of the town, the tribe, or the neighborhood—gather and set up a fund to collect whatever donations are possible for the afflicted among them and others, that would be better. It resembles charitable welfare associations. May Allah reward you with good.