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Conventional Insurance explained

 

Q. Last year, I signed up with an insurance agent for a pension plan and health insurance, especially since I got badly injured a couple years ago and my parents got broke paying my medical bill. She made a convincing speech as to how beneficial they both were. I recently learned that these are haram. My imam explained to me that insurance is like a gamble and also that the interest generated is haram. I told her this on the phone that I wanted to cancel the pension plan since every month some money is coming out of my account. I already paid for the year for the health insurance. We have a small business and she tried to make a point that don’t we make a profit in our business, well that is just like the insurance company, the interest made is profit from investing in other companies, and I didn’t know how to reply to her. I understand why interest is haram, but how do I explain it to a non-Muslim? She is also a friend and customer of ours so I want to be able to explain to her without any hard feelings. Can you please advise me.

 

In modern terms, an ‘Insurance contract is an agreement whereby one party, the insurer, in return for a consideration, the premium, undertakes to pay to the other party, the insured, a sum of money or its equivalent in kind, on the happening of a specified event, which is contrary to the insured’s financial interest’.

 

Answer

Based on contemporary Insurance experts, that which is really insured is not the items/commodities/assets which are destroyed. Instead, it is one’s financial interest that is insured. This is clearly expressed by Lord Justice Brett in the case of Castellian V. Preston-1883). He says, ‘what is it that is insured in a fire policy? Not the bricks and materials used on building the house, but the financial interest (i.e money) of the insured is the subject matter of insurance’. (Articles on Insurance by Islamic Banking and Finance Institute (UK)- pg. 56).

 

Based on these explanations given by contemporary experts in the field of conventional Insurance, the Shariah scholars view the insurance contract as an exchange where money is being exchanged for money, over time. On one hand, the policy holder pays money in the form of premiums, and on the other hand, the Insurance Company pays a return in the form of money (with an increase) over a period of time.

 

In Islam, this type of contract brings about the problem of Gharar (uncertainty) which leads to Maisir (gambling), and in the investments aspect, it brings about Riba (interest). All of these are totally condemned in Islam. Therefore, there are three main elements which are to be found in Conventional Insurances and become the cause for its prohibition in Islam.

 

A brief explanation on these, are as follows:-

 

Uncertainty (Gharar)

Conventional insurance contract is basically a contract of exchange, i.e. buying and selling, whereby policy (indemnity) is sold as goods, with the premium as the price or consideration.

 

The consideration must be certain for an exchange contract.

 

Uncertainty (gharar) in insurance contracts pertains to ‘deliverability’ of subject matter. That is, there is the uncertainty as to:-

Whether the insured will get the compensation which has been promised by the Insurance company?

 

How much the insured will get?

When will the compensation be paid?

 

Thus, conventional insurance involves an element of uncertainty in the subject matter of the Insurance Sales Contract, which renders it void under the Islamic law.

 

Gambling (Maisir)

As expressed by contempory scholars, insurance is a contract of speculation. This has been clearly stated by Lord Mansfield in the case of Carter Vs Boehm- 1766. He says, ‘Insurance is a contract upon speculation, good faith forbids either party from concealing what he privately knows, to draw the other into a bargain, from his ignorance of that fact, and his believing to the contrary’. (Ibid).

 

The insured loses the money paid for the premium when the insured event does not occur.

The company will be in deficit if claims are higher that premium.

 

Interest (Riba)

Prohibition of Riba is central to Islamic financial ethics and law. All contracts and transactions must be free from elements of Riba.

 

Insurance funds are invested in financial instruments which contain the element of Riba.

 

A general overview of what has been said is that in insurance, the insured person sells his risk at a price to the counter-party, thus including an element of ‘uncertainty’ (gharar) in the contract. Under the shariah, a contract of uncertainty exists when the counter-parties do not know the nature of the counter value that they are trading. A house may burn down, costing the insurer a large sum of money, or it may not burn down in which case the insured person has paid a premium and received nothing in return.

 

Conventional insurance is not transparent, as companies discriminate when assessing risks factors. For instance, different premiums are quoted, based on age, gender and financial status.

 

Insurance Companies may also invest in ventures that may involve interest or some form of activity which goes against the teachings of the Shariah.

Conventional insurance is not mutually beneficial, as certain individuals (share holders, for example) benefit at the expense of others. In other words, commercial insurance companies exist to serve the interest of shareholders first, not policyholders.

 

These are some of the elements which make conventional insurance unlawful for Muslims. It should be noted however, that while declaring the mode and manner in which conventional insurance operates to be unlawful, Islam does not oppose the underlying objective of ‘Insurance’ which is Mutual help, Cooperation and joint guarantee. It also does not go against the act of taking measures against possible dangers or consequences. However, for this, Islam has its own manner of operation which is free from the prohibited elements mentioned above. In this regard, the Islamic Banking and finance industry, has recently brought about the ‘Takaful System’ which replaces the conventional concept of insurance. The Takaful (Islamic Insurance) is guided by the principles of Islam, which aims to establish a social order based on Universal brotherhood in Islam. The Prophet (SAS) clearly indicated to this when he said, ‘A Muslim is the brother of another Muslim, he neither wrongs him; nor leaves him without help; nor humiliates him’. (Muslim).

 

And Allah knows best.

Mufti Waseem Khan

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Is Home Contents Insurance Unlawful?

 

Question

Is home contents insurance haram when living in a rented property, where carpets & curtains etc. belong to the landlord? If there was a fire, say, I could not replace such items without insurance because of the large sums involved.

 

ANSWER

In the name of Allah, Most Compassionate, Most Merciful,

 

All prevalent forms of insurance are unlawful (haram), because they either have an element of interest (riba), gambling (qimar) or both. This was explained in detail in many earlier answers.

 

As far as home contents insurance is concerned, the same ruling would apply. As such, it is not permitted to take out insurance for the furniture in a rented property. The premium paid to the insurance company is actually money being placed at risk. One may not receive anything in return (if nothing was to happen to the furniture), or it may bring more money with it (if damaged was caused to the furniture). This is what we call gambling. Similarly, a small amount of money is paid as premium and may bring about a larger amount in return, which is nothing but Riba.

 

In order to save yourself from having to pay large amounts for the furniture if something was to go wrong, there are two things you can do:

Firstly, have an arrangement with the landlord that you will not be responsible for any damage that was caused naturally and without you being at fault, such as fire, theft and other similar matters.

 

Secondly, your landlord may take out an insurance cover if he wishes, and as a result he may increase your rental charge. It would be allowed for you to rent a property wherein the landlord has taken out insurance on the items and furniture. This action of his will not be attributed to you. The increased rental charge should not be considered a payment for the insurance; rather, merely a rental charge.

 

And Allah knows best

[Mufti] Muhammad ibn Adam

Darul Iftaa

Leicester , UK

 

Source

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Working for a Insurance Company and the Accounting Job

 

Question

I had two questions.

 

(1) Would it be permissible to work as a Medical Billing/Insurance Specialist? I am interested in getting into a program to become this. I would be working at a doctor’s office and handling the patients’ insurance information, talking to med. insurance companies’ about insurance claims, etc…

 

(2) Is it permissible to have medical insurance? If not, what should we do? If Working in this field is not permissible, I would also be interested in being and accountant and handling companies’ bills and finances. Would this be permissible?

 

ANSWER

In the name of Allah, Most Compassionate, Most Merciful,

 

Firstly, the permissibility or otherwise of an insurance policy depends on the terms and insurance policy scheme. But leaving aside mutual insurance schemes, all the insurance policies available with the traditional insurance companies run on commercial basis have an element of interest (riba) or chancing (qimar) or both, hence, not allowed. (This has been explained in previous answers).

 

Therefore, all forms of insurance including medical insurance will be unlawful.

 

As far as the alternative is concerned, Islamic financial institutions offer a viable and Islamically-accepted alternative, which is takaful, a form of cooperative insurance. Details of this are available through such institutions.

 

Secondly, to directly assist another towards involvement in the sin of riba is also unlawful and sinful.

 

Allah Almighty says:

“Help ye one another in righteousness and piety, but help ye not one another in sin and rancour.” (Surah al-Ma’idah, 2)

 

Sayyiduna Abd Allah ibn Mas’ud (Allah be pleased with him) narrates that the Messenger of Allah (Allah bless him and give him peace) has cursed the one who accepted usury, the one who paid it, the witness to it, and the one who recorded it. (Sunan Abu Dawud: Book 22, Number 3327)

 

In light of the above and many other Hadiths, scholars have ruled that it would be unlawful for a Muslim to accept employment in a bank or any such institution whose dealings are primarily centred on interest-based transactions, such as an insurance company.

 

Regarding the work of an accountant, it should be understood that the meaning of “one who records it (interest)” in the aforementioned Hadith is the one who actually writes an agreement of interest or prepares the document to evidence the transaction.

 

It does not include a person who was not involved in the transaction of Riba itself in any way, but while preparing the accounts of a business came across a Riba transaction, and records it as an event that already took place without his involvement.

 

The great Hadith expert (hafidh), Ibn Hajr al-Asqalani (Allah have mercy on him) States:

“This (the curse of Allah in the Hadith) is applicable only to a person who has supported the relevant person in the transaction of Riba and agreed to it… The reference in the Hadith is only to a person who has helped the relevant party in the transaction of Riba by writing its agreement or being a witness to it.” (Fath al-Bari, 4/314)

 

It would therefore be generally permitted to work as an accountant. However, as a matter of precaution a Muslim should also avoid this type of recording, but it does not fall in the category of clear prohibition. (Contemporary Fatawa, 161)

 

And Allah Knows Best

[Mufti] Muhammad ibn Adam

Darul Iftaa

Leicester , UK

Source

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Becoming An Insurance Broker
 

Q. I am currently working in the Insurance Industry. Islamically I do ‘not know if this is a correct way of earning my Rozi. If I am correct then my question will be of no relevance but I will ask anyway.

 

I am contemplating becoming an Insurance Broker.

Would that be acceptable in our Deen?

 

(Question published as received)

 

 

A. We appreciate your question and make Dua that Allah guides you towards a suitable career and grants you a permissible and suitable job. Amin.

 

Insurance is Haraam due to it involving Riba (interest) and Gharar (uncertainty). It is not permissible for a Muslim to be an insurance broker.

 

Mufti Suhail Tarmahomed

 
Fatwa Department

Jamiatul Ulama (KZN)


Council of Muslim Theologians

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Insurance for a Business

 

Q: I purchased a business and wish to insure it. What is the Shar‘ee ruling regarding insuring one’s business?

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A: Insurance is haraam in Islam due to the elements of interest and gambling being found in it. One is uncertain as to whether one will be burgled in the future or not. Any transaction wherein one pays for something which is suspended upon an uncertain event is in actual fact gambling. This is the definition of gambling according to all the Ulama. In the case of gambling, one spends a certain amount of money in the hope of gaining something which is uncertain. One might lose all one's money and get nothing or one might get something more or less than what one had spent. Hence we see the element of gambling found in an insurance policy. Further, if one receives the insurance payout and one is paid more than the amount one had paid to the insurance company, then in this case the extra amount one has received is riba (interest). Hence taking out an insurance policy is impermissible in Shari'ah.

And Allah Ta'ala (الله تعالى) knows best.

الَّذِينَ يَأْكُلُونَ الرِّبَا لَا يَقُومُونَ إِلَّا كَمَا يَقُومُ الَّذِي يَتَخَبَّطُهُ الشَّيْطَانُ مِنَ الْمَسِّ ذَٰلِكَ بِأَنَّهُمْ قَالُوا إِنَّمَا الْبَيْعُ مِثْلُ الرِّبَا وَأَحَلَّ اللَّـهُ الْبَيْعَ وَحَرَّمَ الرِّبَا فَمَن جَاءَهُ مَوْعِظَةٌ مِّن رَّبِّهِ فَانتَهَىٰ فَلَهُ مَا سَلَفَ وَأَمْرُهُ إِلَى اللَّـهِ وَمَنْ عَادَ فَأُولَـٰئِكَ أَصْحَابُ النَّارِ هُمْ فِيهَا خَالِدُونَ ﴿البقرة: ٢٧٥﴾

يَا أَيُّهَا الَّذِينَ آمَنُوا إِنَّمَا الْخَمْرُ وَالْمَيْسِرُ وَالْأَنصَابُ وَالْأَزْلَامُ رِجْسٌ مِّنْ عَمَلِ الشَّيْطَانِ فَاجْتَنِبُوهُ لَعَلَّكُمْ تُفْلِحُونَ ﴿المائدة: ٩٠﴾

عن جابر رضي الله عنه قال لعن رسول الله صلى الله عليه وسلم آكل الربا وموكله وكاتبه وشاهديه وقال هم سواء رواه مسلم ( مشكوٰة المصابيح ص244)

عن أبي هريرة عن رسول الله صلى الله عليه وسلم قال ليأتين على الناس زمان لا يبقى أحد إلا أكل الربا فإن لم يأكله أصابه من بخاره ويروى من غباره رواه أحمد وأبو داود والنسائي وابن ماجه ( مشكوٰة المصابيح ص245)

وعن عبد الله بن حنظلة غسيل الملائكة قال قال رسول الله صلى الله عليه وسلم درهم ربا يأكله الرجل وهو يعلم أشد من ستة وثلاثين زنية رواه أحمد والدراقطني وروى البيهقي في شعب الإيمان عن ابن عباس وزاد وقال من نبت لحمه من السحت فالنار أولى به ( مشكوٰة المصابيح ص245)

( إن شرط لمال ) في المسابقة ( من جانب واحد وحرم لو شرط ) فيها ( من الجانبين ) لأنه يصير قمارا

قال الشامي : قوله ( ومفاده لزومه بالعقد ) انظر ما صورته وقد يقال معنى قوله لعدم العقد أي لعدم إمكانه على أن جواز الجعل فيما ذكر استحسان قال الزيلعي والقياس أن لا يجوز لما فيه من تعليق التمليك على الخطر ولهذا لا يجوز فيما عدا الأربعة كالبغل وإن كان الجعل مشروطا من أحد الجانبين اه فتأمل وبالجملة فيحتاج في المسألة إلى نقل صريح لأن ما ذكره محتمل ورأيت في المجتبى ما نصه وفي بعض النسخ فإن سبقه حل المال وإن أبى يجبر عليه اه أقول لكن هذا مخالف لما في المشاهير كالزيلعي و الذخيرة و الخلاصة و التاترخانية وغيرها من أنه لا يصير مستحقا كما مر فتدبر قوله ( من الجانبين ) بأن يقول إن سبق فرسك فلك علي كذل وإن سبق فرسي فلي عليك كذا زيلعي وكذا إن قال إن سبق إبلك أو سهمك إلخ تاترخانية قوله ( لأنه يصير قمارا ) لأن القمار من القمر الذي يزداد تارة وينقص أخرى وسمي القمار قمارا لأن كل واحد من المقامرين ممن يجوز أن يذهب ماله إلى صاحبه ويجوز أن يستفيد مال صاحبه وهو حرام بالنص ولا كذلك إذا شرط من جانب واحد لأن الزيادة والنقصان لا تمكن فيهما بل في أحدهما تمكن الزيادة وفي الآخر الانتقاص فقط فلا تكون مقامرة لأنها مفاعلة منه (رد المحتار 6/ 402)

Answered by:

Mufti Zakaria Makada

Checked & Approved:

Mufti Ebrahim Salejee (Isipingo Beach)

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