This is a complete Islamic guide on is insurance haram or halal in Islam. Whether you’re looking for life insurance, car, health, or even insuring your home. This guide has all the answers with evidence from the Qur’an and authentic (sahih) hadith from the Sunnah.
Bismillah… to begin with the name of Allah.
Is Insurance Haram in Islam? – Read This First!
Conventional insurance is haram in Islam. Whether that be life insurance, car, health, home or even commercial insurance. This is because insurance involves non-sharia compliant elements of interest (Riba), gambling (Qimar) and uncertainty (Gharar). Which are all haram (prohibited) in Islam.
Types of haram insurance policies include;
- Mobile Phone Insurance
- House, Home, Building or Property Insurance
- Indemnity Insurance
- Education Insurance
- Funeral and Death Insurance (unless it’s Islamic sharia compliant cooperative insurance)
- Accident Insurance
- Dental Insurance
- Employment or Job Insurance
- Unemployment Insurance
- Income Protection Insurance
- Car, Motor, Vehicle or Auto Insurance (Disclaimer: unless it’s a legal requirement in your country, for more details see – Is Car Insurance Haram or Halal in Islam)
- Guaranteed Asset Protection (GAP) Insurance
- Bikes, Trucks or Van Insurance (Disclaimer: unless it’s a mandatory in your country, for more information please click here)
- Mortgage Protection Insurance
- Pet Insurance (e.g. Cat Insurance)
- Product Insurance
- Appliance Insurance
- Shipping Insurance
- Boiler Coverage Insurance
- Disability Insurance (Disclaimer: please seek advice from an Islamic scholar for your individual circumstances)
- Critical illness Insurance (Disclaimer: please seek advice from an Islamic scholar for your individual circumstances)
- Medical or Private Health Care Insurance (Disclaimer: please seek advice from an Islamic scholar for your individual circumstances)
- Landlord Insurance
- Renters or Tenants Insurance
- Contents Insurance
- Life Insurance
- Comprehensive Insurance (Disclaimer: unless it is a legal requirement in your country)
- Third Party Insurance (Disclaimer: unless it is a legal requirement in your country)
As a general rule, all four schools of thought consider the concept of conventional insurance to be harām in Islam. Hanafi, Shafi’i, Maliki and Hanbali all state the notion of conventional insurance goes against sharia law.
To learn why all these insurance policies are NOT halal please refer to the section on Why is Insurance Haram in Islam.
Disclaimer: If it is a legal requirement in your country to have a particular insurance policy. Then some scholars state that insurance may be halal (permissible) for you. For more details please refer to the section on is conventional insurance halal.
To understand why conventional insurance is prohibited in Islam. First let’s understand what insurance is and how insurance companies make money.
What is Insurance? (In Simple Words)
Insurance is a type of risk management. The policyholder pays an insurance company a premium to protect themselves or their assets against unfavorable future events. In the event of an accident, illness, damage or death the insurance company will pay the policyholder a sum for their losses.
A Policyholder is a person that takes out an insurance policy or contract with an insurance company.
Premium is the money the policyholder pays the insurance company for the insurance policy. This is usually paid on monthly installments.
There are many types of insurance policies such as life insurance, car, motor, house, health, travel, phone and commercial insurance.
The benefits of insurance are many but there are also disadvantages. Insurance policies provide the policyholder piece of mind and a financial security net against unforeseen events. For a minimal monthly fee the policy holder can gain back many times more; if or when a calamity occurs.
On the other hand, if no misfortune happens the policyholder may receive nothing. And this is the case for the majority of the people that take out standard insurance policies for cars and homes.
How do Insurance Companies Make Money? (Explained)
Insurance companies make money by pooling together a large amount of money from thousands of policyholders. Then they aggressively invest this money into bonds, interest-based banking and profitable ventures. Any unclaimed insurance policy premiums also adds to their profits.
For example, if you take out a car insurance policy and pay monthly premiums to your insurance company. But you had no accident so you did not make a claim during the year of your insurance policy. The monthly premium installments you paid for your insurance policy adds to the revenue of the insurance company.
Insurance companies strategically diversify their risks. Besides reinvesting policyholder premiums into interest based assets. Insurance companies hire expert statisticians and mathematicians to manage risk.
These experts calculate complex equations and trends of human society. Their calculation models predict how many people will make a claim on their policies. This lowers the risk factor of insurance companies. Therefore, insurance companies regularly make huge profits.
Why Is insurance Haram in Islam? (Life, Health, Home, Travel etc.)
Insurance is haram in Islam because it involves interest/usury (Riba), gambling (Qimar) and high levels of uncertainty (Gharar). These are all major sins in Islam and considered haram. This makes the contract of insurance prohibited for a Muslim under the principles of sharia law.
Whether that be health insurance, car, life, travel, or home insurance. Conventional insurance companies all have clear elements of gambling, interest and uncertainty. Therefore they are unacceptable and not permitted for a Muslim.
Let’s look in detail with examples how conventional insurance policies entail all these three major sins. And why are they not allowed in Islam. Then later we will also look at the Islamic takaful insurance model. Which is a halal insurance and is ethical and better than the conventional insurance model.
Gharar in Conventional Insurance Contracts (Explained with Evidence)
Gharar in Arabic means uncertainty. Gharar is the sale of something that is unknown or ambiguous.
Gharar in insurance contracts is that you are uncertain what you will get. You could pay insurance premiums for months/years but in the end get nothing. No misfortune happened so there was no payout. Or you could pay an insurance premium for one month and something happens and you get a huge payout.
This ambiguity in Islamic finance is known as gharar and gharar is haram. This is why in Islamic banking gharar is prohibited.
Allah prohibits Gharar in no less than two verses in the Qur’an:
“Do not consume one another’s wealth unjustly.” – [Quran 2:188]
“O you who have believed, do not consume one another’s wealth unjustly but only (in lawful) business by mutual consent.” – [Qur’an 4:29]
The practice of Gharar by its essence is unfair and unjust. One party benefits over the loss of the other. And so Gharar is a predatory and unjust means of consuming other people’s wealth. Allah in His last and final revelation has prohibited such practices of consuming people’s wealth unjustly.
The Prophet (peace be upon him) also strictly forbade all transactions that include high levels of uncertainty (gharar).
Narrated on the authority of Abu Huraira that the Messenger of Allah (peace be upon him) forbade a transaction which involves some gharar (uncertainty).
[Sahih Muslim • Book 21, Hadith 8 • Graded Authentic (Sahih)]
Please note: This is different from uncertainty in business partnership which is halal. In business partnerships, two or more parties come together and they all take a risk in the business to share the risk and reward. This is known as profit and loss share. This is halal.
In conventional insurance contracts both parties are unaware of exactly what they will get. The policyholder nor the insurance firm is guaranteed an equitable risk and reward. Nor is there a fair profit and loss share. Rather one benefits over the loss of the other. This is gharar (uncertainty) and gharar is haram.
What if I think the benefits outweigh the harms in insurance policies?
The Prophet (peace be upon him) did not say that if both the seller and buyer are okay if one loses at the gain of the other then Gharar contracts are halal.
Insurance contracts come under Gharar Fahish (excessive uncertainty). And the Prophet (peace be upon him) forbade all transactions of Gharar Fahish in clear terms with no exceptions. Even If the seller and buyer agree to the terms, Gharar contracts do not become permissible.
So if someone says that they think the benefits of gharar in insurance contracts outweighs the harms, this is besides the point. The Prophet (peace be upon him) forbade Gharar Fahish (high levels of uncertainty) – no exceptions.
For more details on what is gharar and why gharar is haram in Islam please click here.
Interest (Riba) in Conventional Insurance Contracts (Explained with Evidence)
Riba in Arabic means interest or usury. Riba is an increase added on the exchange of money for money transactions usually at a later date. In Islam money for money transactions should be done on the spot without any increase.
Interest in conventional insurance policies is that the policyholder pays monthly premiums. In exchange the policyholder expects a guaranteed return of higher money for their money in an unlikely event at a later date. This is pure riba (interest/usury) and riba is one of the major sins in Islam.
There are two types of Riba (interest) in Islam;
- Riba al-Fadl (Riba of surplus amount)
- Riba al-Naseeyah (Riba of delayed time)
Conventional insurance contracts are guilty of both types of Riba. Riba al-Fadl (Riba of increased amount) and Riba al-Naseeyah (Riba of delayed time). The policyholder expects a higher return at a later date if they suffer damage or loss.
Consuming or giving interest is one of the major sins in Islam. Allah strictly forbids us Muslims from interest/usury. The one who gives interest and the one who receives interest are both at war with Allah and His Messenger.
O you who have believed, fear Allah and give up what remains (due to you) of interest, if you should be believers.
And if you do not, then be informed of a war (against you) from Allah and His Messenger. But if you repent, you may have your principal – (thus) you do no wrong, nor are you wronged. – [Qur’an 2:278-279]
Qimar/Maysir in Conventional Insurance Contracts (Explained with Evidence)
Qimar means betting and maysir means gambling. They occur when the outcome of a transaction is left to chance with a possibility that one party may be at a total loss.
Qimar/Maysir in insurance contracts is that the outcome is left to chance. You could pay insurance premiums for years. No calamity occurred so you receive nothing. Or you could pay for a short term then a calamity strikes and you get a huge payout. This is the essence of gambling and betting.
In Islam gambling and betting are strictly prohibited (haram). Allah the Exalted says in the Holy Qur’an:
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]
Muslim scholars discuss the element of Qimar/Maysir (gambling) in insurance policies in great detail.
In brief they state, if the policyholder knew that no misfortune will ever happen and they will get nothing. Then he/she would never waste their money towards an insurance policy.
And if the insurance company knew that the policyholder will have a misfortune in a few short months. And as per the insurance policy they would have to pay thousands/millions for someone who paid a minimum amount. Then they would never take on this policyholder.
This is the essence of betting/gambling (Qimar/Maysir). Where the outcome of a gain is left to chance and one party may be at a total loss.
The Argument Against Gambling being Present in Conventional Insurance Contracts
Some contemporary scholars have debated the existence of Qimar (betting) or Maysir (gambling) in conventional insurance contracts.
They compare buying insurance like buying stocks and shares of a company. And just like buying shares in a company you could lose all your money if the company goes bankrupt or gain huge profits if it excels. Similarly you may get nothing for your insurance policy or get huge gains if you make a claim.
So according to these contemporary scholars conventional insurance contracts are not considered gambling. Rather they can be compared to risking your money buying shares on the stock market.
On the face of it this analogy does make sense. However, scholars on the other side debated this analogy as baseless and non-nonsensical.
Let’s analyze if this analogy of insurance being like buying stocks and shares actually has any merit from an Islamic perspective:
Buying stocks and shares on the share market for a halal company is permissible in Islam. However, when you buy the shares of the company. They can go up in a few years or even down and you can lose some or all of your investment.
In Islam this is called a profit and loss share and so buying shares and stocks is not haram. This is because your investment is a business investment in a halal company and not a gamble like a lottery or a bet.
As long as you were strategic in your investment and your intention was to put money into a halal business to help it grow and share the profits. Your gains or losses in that business are halal and are not considered gambling. It’s simply the nature of business to go up or down.
Scholars state that insurance policies are NOT like buying stocks and shares. They bring three fundamental points to argue their claim:
1. Insurance companies are haram
Conventional insurance companies are non shariah-compliant businesses. They are haram businesses that make money from interest (riba) and gharar (uncertainty). So it would not be halal to invest and make money from such companies in the first place.
So the stocks and shares analogy makes no sense for insurance. This is because insurance shares would be haram to invest in even by a Muslim investor/stock broker on the stock market.
Any monetary benefit from an insurance claim cannot be compared to a monetary benefit from an investment in a halal company.
2. Intention & Contracts in Islam
In Islam actions are by intentions and transactions are defined by their contracts/agreements. Someone who is taking out an insurance policy is not doing it with the intention of an investment in the insurance business. Nor are they signing a contract of investment return if the insurance business does well. Rather they are doing it with the intention and contractual agreement of getting a payout if they suffer a loss.
So the contract for investment in a company is different to a contract of an insurance policy.
3. Insurance contracts are not ‘profit and loss share’ like the stock market
In Islam it is permitted to invest in a halal company and share profit and loss between different stakeholders.
Taking out an insurance policy is not ‘profit and loss share’. It is the opposite. One party gains at the loss of the other. Just like in betting, gambling or the lottery. So the risk factor of insurance vs stocks and shares is not the same.
Insurance companies lose out if the policyholder makes a claim while the policyholder benefits from the claim. And the policyholder loses out if they do not make a claim while the insurance company benefits by keeping the premiums. This is the essence of gambling where chance dictates who wins and loses.
So once again, the stocks and shares analogy has no relevance to conventional insurance contracts.
Conclusion on the Argument Against Gambling being Present in Conventional Insurance Contracts
Investment in the stock market and taking out an insurance policy are two very different transactions. So the two transactions cannot and should not be conflated.
Ultimately, even the scholars that debated the existence of Qimar (gambling) in insurance contracts. They did not deny the existence of riba (interest) and gharar (high levels of uncertainty) in insurance contracts.
So in conclusion: For discussion’s sake even if we accept the analogy that there is no element of Qimar (gambling) in insurance contracts. No one can deny the unambiguous clear-cut existence of interest (riba) and uncertainty (gharar) in insurance contracts. Which is haram so either way conventional insurance policies/contracts are haram.
When Is Convetional Insurance Halal in Islam?
As a general rule conventional insurance is NOT halal in Islam. Insurance consists of interest (Riba), uncertainty (Gharar) and gambling (Qimar/Maysir). But some scholars allow certain insurance policies to be halal if you did not purchase it or if it is out of dharoorah (necessity).
1. Free Insurance
An example of an insurance policy that you did not purchase is a free health insurance policy that your company may provide. If you did not purchase it and your company is providing it as part of your employment. Which is rare but it does happen. Then this insurance policy is halal.
This is because you did not purchase anything or put money into anything yourself. So there is no element of interest (Riba), uncertainty (Gharar) and gambling (Qimar).
If your employer is cutting out your salary to pay for insurance then this is a different matter. Here you would fall into interest (Riba), uncertainty (Gharar) and gambling (Qimar). And this would be haram.
Insurance out of dharoorah (necessity)
An example of dharoorah (necessity) in insurance policy is car insurance. In the UK it is against the law to drive without minimum third-party car insurance. So some Muslim scholars in the UK have allowed third-party car insurance under dharoorah (necessity). But this is an exception and not a general ruling for all insurance to be halal.
To support their argument they bring the verse of the Qur’an. In the Qur’an Allah has made pork forbidden (haram) for Muslims to consume. But in the same verse Allah says that if the halal is not available then the haram becomes permissible. This is out of necessity (dharoorah).
Similarly to avoid getting in trouble with the law by not having the bare minimum third-party insurance for your car. Third-party car insurance becomes halal out of necessity. As long as you know in your heart that it’s haram and you are only doing it out of necessity after seeking advice from a scholar.
Note: Some scholars argue that having a car is not a necessity for everyone. And so we cannot apply this verse to allowing car insurance.
He has only forbidden to you dead animals blood, the flesh of swine, and that which has been dedicated to other than Allah. But whoever is forced (by necessity), neither desiring (it) nor transgressing (its limit), there is no sin upon him. Indeed, Allah is Forgiving and Merciful. – [Qur’an 2:173]
However, despite scholars making insurance permissible due to necessity as an exception. It still doesn’t change the fact that Islamically conventional insurance is haram.
Therefore, even if you have to take out insurance because of the law in your country. As a believer you should not be content with it and always detest it in your heart.
This is essential because in essence you are doing something that is haram and transgresses the boundaries of Allah. And a true Muslim can never be content with disobeying Allah.
The Prophet (peace be upon him) informed us that “the reward for actions are by their intentions”. So it is crucial that in order for us to be forgiven and rewarded for what we do out of necessity we detest taking out insurance.
Narrated ‘Umar bin Al-Khattab:
I heard Allah’s Messenger (peace be upon him) saying, “The reward of deeds depends upon the intentions. And every person will get the reward according to what he has intended.”
[Sahih al-Bukhari • Book 1, Hadith 1 • Graded Authentic (Sahih)]
Islam also has it’s own version of insurance known as takaful which we will discuss later.
Is it Haram to Claim Insurance?
As a general rule, conventional insurance is haram (prohibited) in Islam unless it is out of dharoorah (necessity). If you have an insurance policy out of necessity then it is not haram for you to make a claim under your insurance policy.
However, the scholars have differed regarding making an insurance claim. In general there are three opinions.
- If you make a claim you only take back what you originally paid in. Any amount above and beyond what you initially paid for your insurance is haram. Because that claim will have Gharar (uncertainty), Riba (interest/usury) and Qimar/Maysir (gambling).
- The one who caused the accident is responsible for covering the damage. And the one that got injured or suffered damages is entitled to compensation. So if you’re involved in an accident you may make a claim against the insurance policy of the one that caused you harm.
- Conventional insurance is haram in Islam. So it is not permissible to make a claim under an insurance policy. Nothing will befall us unless it be by the Decree of Allah. So we should be patient with the Decree of Allah and cover the losses from our own halal wealth. We should not resort to making a claim under haram insurance policies that contain interest, gambling and uncertainty.
Takaful – The Halal Alternative to Conventional Insurance (with evidence)
Takaful is a halal alternative to conventional insurance. It is a cooperative based insurance system where a group of people come together and make regular ‘donations’ to a mutual fund. When somebody suffers a loss they can access the funds and continue to contribute to help others in future.
Takaful means solidarity or mutual guarantee. Members in the takaful group contribute money to the takaful fund to guarantee each other against any future loss or damage. Takaful is a sharia compliant insurance plan for Muslims. Where Muslims come together to provide halal insurance for life, health, car and even education.
The intention of contributing to the takaful fund is donations to help those in need and not an investment/profiting. And because the contract/agreement is donations there can be no gharar (uncertainty) or riba (interest).
Takaful funds can be invested into sharia compliant ventures. This helps the fund grow over time for maximum benefit to the participants in their time of need. This is different to conventional insurance models. Where insurance premiums are invested into non-sharia compliant bonds and interest-based banking.
The benefits of takaful vs insurance is that takaful does not contain haram non sharia compliant elements. Such as qimar/maysir (betting/gambling), riba (interest/usury) and gharar (uncertainty). Takaful also encourages shared social responsibility, mutual support and donations to help those in need.
The evidence for the concept of takaful can be found in the hadith of the Prophet (peace be upon him). Where he praised the Ash`ari tribe for pooling their provisions together to help each other in the time of need.
Narrated Abu Musa:
The Prophet (peace be upon him) said. “When the people of Ash`ari tribe ran short of food during their campaigns. Or the food of their families in Medina ran short. They would collect all their remaining food in one sheet and then distribute it among themselves equally by measuring it with a bowl. So, these people are from me, and I am from them.”
[Sahih al-Bukhari • Book 47, Hadith 4 • Graded Authentic (Sahih)]
Allah also commands Muslims to cooperate together in good work and helping one another:
“Cooperate with one another in goodness and righteousness” – [Qur’an 5:2]
Conventional insurance is haram in Islam. Insurance contracts have gambling (Qimar), interest (Riba) and uncertainty (Gharar) in them. Which are all haram (prohibited) in Islam. Some scholars have allowed insurance in certain circumstances. Takaful is a halal Islamic alternative to insurance.
If you live in a country where it is unlawful for you to NOT have insurance. Then you may take out the bare minimum enforced insurance policy to be a law abiding Muslim. Otherwise as a Muslim you should avoid any conventional insurance contracts.
All evidence provided is from the Quran and authentic (sahih) hadith.
Disclaimer: You may have individual circumstances which may make insurance halal for you based on necessity. Such as a medical condition or disability. Seek advice with a trusted scholar for your specific personal situation and circumstances.
Please share this page with your friends and family so they can also learn about is insurance halal or haram in Islam.
And Allah the Most Knowledgeable and Ever Wise knows best.
Is Life Insurance Haram or Halal?
As a general rule, conventional life insurance is haram in Islam because conventional insurance consists of haram non-sharia complaint elements of:
- Qimar/Maysir (Betting/Gambling)
- Gharar (Uncertainty)
- Riba (Interest/Usury)
There are two types of life insurance and both are haram:
- Term Life Insurance
- Whole Life Insurance
Is Health Insurance Haram or Halal?
Health insurance is haram in Islam because it involves uncertainty, gambling and interest. These are all major sins in Islam known as Gharar, Maysir and Riba. As Muslims we should put our trust in Allah Al-Shāfi (The Healer) for our health and well being and not resort to haram insurance.
Is Home Insurance Haram or Halal?
Home insurance is haram in Islam because insurance companies deal with interest (Riba), uncertainty (Gharar) and gambling (Maysir). It is Allah who protects our houses and families from any harm, not insurance companies. As a Muslim homeowner you should avoid haram conventional house insurance.