Life insurance from an Islamic perspective II

The tabarru' concept is incorporated in Takaful contract to eliminate the uncertainty element. A participant shall agree to relinquish as tabarru', certain proportion of his Takaful contributions that he agrees or undertakes to pay. Consequently, enables him to fulfil his obligation of mutual help and joint guarantee should any of his fellow participants suffer a defined loss. The sharing of profit or surplus that may emerge from the operations of takaful, is made only after the obligation of the assisting the fellow participants is fulfilled. It is imperative for a Takaful operator to maintain adequate assets of the defined funds under its care whilst simultaneously striving prudently to ensure the funds are sufficiently protected against undue over-exposure.

I was automatically enrolled for life insurance with my company. I would like to know if I must cancel the life insurance policy or not. Can you please explain if it is haram or halal and why?

Life insurance is a new contract not known in the history of Fiqh. Muslim scholars have different opinions regarding this kind of insurance. Responding to the question, Dr. Monzer Kahf, Scholar in Islamic Economics & Financial Expert, states the following:

In the circles of contemporary Shari'ah scholars, there are three opinions about life insurance. They all recognize that it is a new contract not known in the history of Fiqh. A minority consider it haram and with all kinds of argument against it including Riba, gambling, gharar and speculation on the will of Allah. This view does not carry much weight.

The second view is that it contains gharar because no one knows whether the liability of the insurer (the company) will ever materialize nor when it will, if ever. This is a serious gharar that leads to a major defect in the contract. It is therefore forbidden.

The third opinion is presented by the late Sheikh Mustafa al Zarka.

He argued that the gharar in the contract is remedied by the fact that it is a contract based on overwhelming statistical knowledge and the application of the theory of probability. With this in mind, there is no gharar on the part of the insurer and the contract is permissible with two conditions: that it contains no Riba clause and that its subject (insured thing) be legitimate. These two conditions rule out regular fixed return life insurance because the value of the policy is the outcome of investment premiums at a compounded rate of interest, (while variable - return life is permissible if the funds are invested in the Shari'ah approved stocks or mutual funds).

They also rule out insuring a prohibited activity such as casinos.The advocators of the second opinion argue that the gharar problem applies only in exchange contracts. If the contract is modified and restructure on the basis of cooperation or mutuality, where there will be an association of the insured instead of a profit motivated insurer company, the gharar is then tolerated.

This is so because the relation between the association and its members become based on contribution or tabarru' rather than exchange and a tabarru' can accommodate certain conditions ( i.e., that the association compensate in case a hazardous event happens). On the basis of this all the "Islamic insurance companies" were established.In this regards, al-Zarka adds, that if a mutual or cooperative insurance exists he prefers it to profit motivated insurance out of his respect to the opinion of opponents.

There is an old argument (from the 1950s), even by those who oppose insurance, that whenever insurance is forced by law, one must do it and one is excused, from the Shari'ah point of view.

This include car insurance, social security, workman compensation, and employer's imposed insurance if it is not optional for the employee to this we add another element that if the insurance provided by the employer is paid completely from the employer, i.e., given as a fringe benefit without deducting any part of the premium from the pay checks, then it is a kind of grant from the employer and if a hazard happens the paid policy amount is halal because it is an outcome of the grant.

Now think for yourself: if your life insurance is only term life, you may apply the opinion of Sheikh al-Zarka, and if it is imposed by employer, you also have room to accommodate, and if it is a grant from employer it is also tolerated. Otherwise you need to see the specifics of the contract you have and determine, in the light of the above briefing, whether you keep or seek to withdraw from it.

Can we have car insurance for all the risks, or just the obligatory car insurance?

Dr. Monzer Kahf, Scholar in Islamic Economics & Financial Expert, states the following: "Insurance service and contracts were invented and developed over the last four centuries in Europe, then extended to the Americas. They reached the Muslim World in the Nineteen century.

Obviously, they were not known at the time of revelation of the Shari'ah nor at the time of the great scholars who founded the known Fiqhi Schools. Over the last more than a hundred years, Muslim scholars considered insurance as a new service that accompanies new risks intrinsic to technological applications, and as a contract.

Thus, in addressing it, two points of view have been developed: one that studies insurance within the context of its environment, i.e., the presence of a large number of people exposed to similar risks that call for the application of the theory of probability and what is called the laws of large numbers; the other regards insurance as only a specific relationship between two parties regardless of its environment. The first trend was led by the late Sheikh Mustafa Al-Zarqa. He argued that, as a new service and contract, insurance companies gather together the risks of a large number of people and redistribute them in a manner that makes them bearable.

This is a form of lawful cooperation that is compatible with the general objectives of the Shari'ah and hence the theory of probability is taken into consideration, the insurance contract does not contain any unbearable amount of ambiguity or undue uncertainty.

According to this view all kinds of insurance contracts (cars, hazards, accidents, transportation, life, etc.) are all permissible provided two conditions are fulfilled:

1. The contract must not contain any Riba element.

2. The object of insurance must be permissible in the Shari'ah i.e., insuring a shipment of liquor is not permissible. It doesn't matter whether this cooperation is founded by a group of concerned persons in the form of cooperatives or by a venture person or a company that takes charge of offering the service of pooling together the risks of a large number of persons.

Consequently, car insurance is permissible for the obligatory liability as well as for the value of the car and the hazards to driver and passengers and every other insurance coverage related to cars and driving them.

According to the second view, any conventional insurance contract between two persons contains elements of Riba, ambiguity, and gharar. It entails Riba because you pay small premium and get back a large sum should a risk occur. It also involves gharar because you don't know whether you will get the large sum or not since you don't know whether a hazard will happen, and ambiguity because you don't know the exact amount you get (though you know the maximum only) nor when it is going to be given to you since you don't know when an accident will happen.