Is Car Insurance Haram/Halal? – A Complete Islamic Guide

If you’re looking for a complete Islamic guide on is car insurance haram or halal in Islam – You’ve come to the right place.

You’ll get all your answers with evidence backed by the Qur’an, and Sunnah.

Bismillah…

Is Car Insurance Haram or Halal?

Is Car Insurance Haram or Halal in Islam? – Read This First!

As a general rule, having car insurance is haram (NOT halal) in Islam because it goes against sharia law. But if it is a legal requirement in your country to have car insurance to drive. Then car insurance is halal for you because it is the duty of a Muslim to be a law abiding citizen.

For example, it is illegal in the UK to drive without at least 3rd party car insurance. So it becomes mandatory for drivers in the UK to take out a car insurance policy to stay within the law. Therefore, some scholars allow third-party car insurance policies to be halal (permissible). They do this by exercising the Islamic principle of dharoorah (necessity).

Traditionally all four schools of thought consider the concept of conventional insurance to be haram. Whether that be Hanafi, Shafi’i, Maliki and Hanbali.

But because it is compulsory in some countries such as the UK to have third-party insurance. Scholars have come to the ruling that due to necessity (dharoorah) it is allowed for Muslims in the UK to take out a third-party car insurance policy. But not a comprehensive insurance policy.

Note: There is a difference of opinion on this matter. Some scholars argue that if there is public transport available then not having a car may pose difficulty but it is not a necessity. And so the principle of dharoorah (necessity) cannot be applied here. Unless your job is driving vehicles such as taxis or lorries. Therefore, they prohibit conventional car insurance as a whole including third-party car insurance.

There is also the Islamic option of takaful co-operative Islamic insurance which is halal.

What if Third-Party Insurance is more Expensive than Comprehensive Insurance?

Third-party insurance can sometimes be more expensive than fully comprehensive insurance. This is because insurance companies calculate insurance premiums based on risk.

If the insurance company’s algorithms predict that someone who takes out only third-party insurance is more at risk than someone who takes out comprehensive insurance. Then the insurance premium for third-party insurance will be more expensive than comprehensive insurance.

In this case some scholars have said that you may take out the cheaper comprehensive insurance. So that you avoid paying more towards conventional haram insurance. But this fatwa comes with a huge disclaimer:

If you are involved in an accident and you get a pay out you only take back what you originally paid in. Any claim/amount above and beyond what you paid in is haram. Because that income will have interest/usury (Riba), uncertainty (Gharar) and gambling (Qimar).

Why is Car Insurance Haram? (Explained with Evidence!)

Car insurance is haram in Islam because it has interest (riba) and uncertainty (Gharar). Which are both prohibited in Islam under sharia law. Some scholars also state that insurance is like gambling because it is based on luck. You give money for insurance and you may get money back or get nothing.

When you pay money for car insurance and an accident happens you expect compensation. This compensation can be a higher amount of money than what you paid for the insurance.

In Islam the higher amount of money is considered as riba (interest). And riba is one of the major sins in Islam.

Allah The Most High commands us in the Qur’an to not consume interest.

O you who have believed, do not consume riba (interest), doubled and multiplied, but fear Allah that you may be successful. – [Qur’an 3:130]

When you pay money towards a car insurance policy. If no accident happens the year you took your car insurance policy. You get no monetary value in return. If an accident does happen you could possibly get thousands and even millions. This is considered gambling in Islam and the outcome has a high level of uncertainty.

In Islam gambling is haram and prohibited in the Quran. And the high level of uncertainty is known as gharar. And the Prophet (peace be upon him) forbade transactions which have gharar (uncertainty).

“O you who have believed, indeed, intoxicants, gambling, [sacrificing on] stone altars [to other than Allah], and divining arrows are but defilement from the work of Satan, so avoid it that you may be successful.” – [Qur’an 5:90]

Narrated on the authority of Abu Huraira that the Messenger of Allah (peace be upon him) forbade a transaction determined by throwing stones, and the type which involves some gharar (uncertainty).

[Sahih Muslim • Book 21, Hadith 8 • Graded Authentic (Sahih)]

Is Paying Car Insurance Monthly Haram or Halal? – Explained!

Paying car insurance monthly is halal if two conditions are met:

1) Car insurance is mandatory in your country
2) Your twelve month total payment is the same as the annual price

If the 12 month premium total is more than the annual price then the increased premium is interest (riba). And riba is haram.

So it is better to pay your car insurance in one go with the annual premium. If you genuinely cannot afford to pay all of your annual premium in one go. Then you may pay monthly out of necessity (dharoorah). Otherwise it is better to pay your car insurance premium in one go for the whole year.

So you may go onto car insurance comparison sites to get a quote for your car insurance. Then calculate the difference between monthly and annual payment to work out which is cheaper and save money. And use your debit card to pay for the insurance that is mandated upon you.

In Islam there is the halal option of takaful co-operative Islamic insurance.

Is Car Insurance Mandatory in the UK? (Explained with References)

In the UK it is mandatory for you to have at least third-party car insurance if you want to drive. Car insurance became compulsory within the United Kingdom in 1930 as part of the Road Traffic Act. If you drive a car and you do not have car insurance you could get fined and penalised.

According to the UK government if the police stop you then you could be fined and get points on your license. But if the case is taken to court then the penalties for uninsured drivers can be quite severe. You could get an unlimited fine and be disqualified from driving completely.

Source: https://www.gov.uk/vehicle-insurance/driving-without-insurance

By law you must have car insurance to drive on UK roads. It is the duty of every Muslim to be a law abiding citizen. Therefore it is a necessity for Muslims in the United Kingdom who are required to drive. That they be insured and take out the minimum required insurance that is mandated by law.

You should always check your vehicle insurance history to make sure you have not passed the expiry date. You can find your expiry date on the car insurance policy documents.

It is a good idea to keep a reminder on your calendar or phone. This is to make sure you are not going against the law and your car insurance is renewed in time every year if you wish to drive on UK roads.

It is also a good idea to check with DVLA and Gov to make sure that you are abiding by all Road Tax, MOT and Insurance requirements.

Is Car Insurance Mandatory in the USA in Every State?

Car insurance is mandatory in most states within the United States of America. Forty-nine out of the Fifty states make it a requirement upon the driver to have a car insurance policy. So car insurance is not required in all states but almost all do.

The average car insurance cost in the USA is around $1,700 per year for a comprehensive cover. In general, automotive insurance should cover liability for injuries and damage of property.

The laws for vehicle insurance are enacted at the state level. You should check the laws of the state you live in to know what level is binding upon you.

Below are a couple of great resources to check car insurance laws by state:

https://www.findlaw.com/injury/car-accidents/car-insurance-laws-by-state.html

https://www.iii.org/automobile-financial-responsibility-laws-by-state

Is Selling Car Insurance Haram? – Explained!

Selling car insurance is haram in Islam. Conventional car insurance companies make money from interest, Qimar (gambling) and uncertainty (Gharar). Which are all haram in Islam. If you sell car insurance you will be selling haram to your customers and your income will be haram.

It is prohibited in Islam for you to work in a car insurance company and sell car insurance.

If you are already working in a car insurance company. You should repent to Allah and actively look for another job.

If you have no other income, scholars state that you can stay in your current job until you find another job. As long as you are consistent in looking for other work.

Conclusion

Taking car insurance according to islam is haram unless it is mandatory in your country to have car insurance. Then car insurance becomes halal for you out of necessity (dharoorah). But you must only take out the minimum mandatory required policy.

You may have circumstances which may make car insurance halal for you. You should ask an imam or mufti in your community who is qualified to give a fatwa to look at your particular case.

All evidence is from the Quran and Sahih (authentic) hadith from the Sunnah.

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And Allah the Most Wise knows best.