What is the ruling on insurance, and what is permissible and what is forbidden in it?
Machine translationRead the Arabic original
Question:
We hear about Islamic insurance, but we do not know its ruling? So would you please clarify what is permissible and what is forbidden in it.
Answer:
Insurance is of two types:
One type is called commercial insurance: a person insures his car, or his building, or his life by paying money to the companies at various times, such as so much and so much. If his car is damaged, they repair it; if his house is damaged or burned down, they rebuild it; and if he dies or is killed, they pay his blood money. This commercial insurance is forbidden because it contains riba (usury or interest) and gharar (excessive uncertainty in a contract).
A decision was issued by the Council of Senior Scholars two or three years ago prohibiting this, and it is clear from the Book of Allah and the Sunnah of His Messenger (peace and blessings be upon him).
The second type is cooperative insurance among Muslims: the intention is not riba (usury or interest) or gharar (excessive uncertainty in a contract), but the intention is cooperation. This is called cooperative insurance. For example, the people of a village, or a tribe, or the residents of a neighborhood, or a family, agree to contribute a specific amount of money—each person contributes so much every month: one hundred riyals, one thousand riyals, or every year. They say: We will collect this to support the poor among us and whoever is struck by an incident, such as being killed or otherwise. The blood money is paid from it, and in this way they support the poor and the needy, and the debtor who has debts, they pay them off for him. And whoever is struck by death, for example: being run over or in a car accident, and has some blood money owed, they help him. The intention behind this is nothing but assistance.
So there is no zakah (the obligatory alms) in this, and this is a righteous deed. This is called cooperative insurance. And if they place it in the hands of a person who works with it, grows it, and trades in it, there is no harm in taking a portion of its profit. For example, it can be said to so-and-so or a specific institution: work with it for half the profit, a third of the profit, or a quarter of the profit, as a mudarabah (a profit-sharing partnership); there is no harm in that, and it is intended for charitable works. This is called cooperative insurance.
We hear about Islamic insurance, but we do not know its ruling? So would you please clarify what is permissible and what is forbidden in it.
Answer:
Insurance is of two types:
One type is called commercial insurance: a person insures his car, or his building, or his life by paying money to the companies at various times, such as so much and so much. If his car is damaged, they repair it; if his house is damaged or burned down, they rebuild it; and if he dies or is killed, they pay his blood money. This commercial insurance is forbidden because it contains riba (usury or interest) and gharar (excessive uncertainty in a contract).
A decision was issued by the Council of Senior Scholars two or three years ago prohibiting this, and it is clear from the Book of Allah and the Sunnah of His Messenger (peace and blessings be upon him).
The second type is cooperative insurance among Muslims: the intention is not riba (usury or interest) or gharar (excessive uncertainty in a contract), but the intention is cooperation. This is called cooperative insurance. For example, the people of a village, or a tribe, or the residents of a neighborhood, or a family, agree to contribute a specific amount of money—each person contributes so much every month: one hundred riyals, one thousand riyals, or every year. They say: We will collect this to support the poor among us and whoever is struck by an incident, such as being killed or otherwise. The blood money is paid from it, and in this way they support the poor and the needy, and the debtor who has debts, they pay them off for him. And whoever is struck by death, for example: being run over or in a car accident, and has some blood money owed, they help him. The intention behind this is nothing but assistance.
So there is no zakah (the obligatory alms) in this, and this is a righteous deed. This is called cooperative insurance. And if they place it in the hands of a person who works with it, grows it, and trades in it, there is no harm in taking a portion of its profit. For example, it can be said to so-and-so or a specific institution: work with it for half the profit, a third of the profit, or a quarter of the profit, as a mudarabah (a profit-sharing partnership); there is no harm in that, and it is intended for charitable works. This is called cooperative insurance.
Source
binbaz.org.sa
The Arabic text is copied verbatim from the original source, without any edits.