Insurance is Halal!

The permissibility of Insurance is one of many hot topics that is debated regularly. Although the majority opinion is that Insurance is impermissible, some scholars argue that certain types of insurance can be considered halal under Islamic principles.

The beauty of our faith is that it allows for differences of opinion. In this article we will share some of the prominent scholars who have decreed insurance to be permissible and we will give some of the key arguments for its permissibility.

Some scholars who have argued in favor of the permissibility of insurance under certain conditions include:

1. Mufti Taqi Usmani: He is a prominent scholar from the Hanafi school of thought and has written extensively on Islamic finance. He has expressed the view that modern insurance can be structured in a way that eliminates elements of gharar (excessive uncertainty) and maysir (gambling) and thus can be considered permissible. He has provided guidelines for creating “takaful” or cooperative insurance models that comply with Islamic principles.
2. Sheikh Yusuf al-Qaradawi: A well-known scholar associated with the Muslim Brotherhood, al-Qaradawi has stated that certain types of insurance, particularly those focused on protecting against genuine risks, can be permissible as long as they are free from prohibited elements such as Ghrar and Riba.
3. Dr. Muhammad Nejatullah Siddiqi: An economist and Islamic scholar, Siddiqi has contributed to discussions on Islamic economics and finance. He suggests that insurance can be permissible if it serves the purpose of risk management without violating key Islamic principles.

These prominent scholars, who argue for the permissibility of insurance, in Islam generally provide a number of arguments to support their position.  Here are some of the common arguments put forth by scholars who consider insurance to be permissible:

1. Risk Management and Protection: One of the main arguments is that insurance provides a means of managing and mitigating financial risks. In a world where unforeseen events and accidents can cause significant financial hardship, insurance can act as a mechanism to provide protection against such risks. This argument emphasizes the concept of “takaful,” which is a cooperative model of insurance where participants pool their resources to collectively cover potential losses.
2. Elimination of Gharar (Excessive Uncertainty): Scholars who support the permissibility of insurance often argue that modern insurance practices can be structured in a way that minimizes or eliminates excessive uncertainty (gharar), one of the prohibited elements in Islamic transactions. By clearly defining the terms and conditions of insurance contracts, the element of ambiguity is reduced.
3. Moral and Social Responsibility: Some scholars contend that insurance can align with Islamic values of taking care of oneself and one’s family. Having insurance coverage can prevent individuals and families from falling into financial distress in times of crisis, which is in line with the broader principle of social responsibility in Islam.
4. Benefit to Society: Scholars who support the permissibility of insurance may argue that insurance contributes to the overall stability of society and the economy by preventing individuals from becoming a burden on the community or the state. In this view, insurance promotes individual financial independence and reduces the risk of poverty.
5. Intention and Usage: Scholars might emphasize the importance of intention (niyyah) and the specific usage of insurance. If the intention behind obtaining insurance is to protect oneself from genuine risks and not to engage in gambling or speculative activities, then insurance can be seen as fulfilling a valid need.
6. Analogies with Other Contracts: Some scholars draw analogies between insurance and other permissible contracts, such as partnership (mudarabah) and agency (wakalah). They argue that just as these contracts are permissible when structured correctly, insurance can also be permissible when its structure adheres to Islamic principles.

Clearly, there is a case to be made for Insurance but it is worth noting that almost every scholar who argues for the permissibility of insurance stipulates that there is a specific way it ought to be structured for it to actually be permissible. Just purchasing insurance without thoughtful consideration for what is actually happening within the policy can lead Muslims to contracts that do contain riba, ghrar and other impermissible attributes.