Is insurance halal?
Conventional insurance, where you pay a fixed premium and the company pays only if a loss happens, is not allowed in the Hanafi baseline this guidance follows. Takaful, a mutual fund members pay into to cover each other, is the halal form. Insurance the law requires of you may be taken.
Why conventional insurance is not allowed
With a conventional policy you pay a fixed premium and the insurer promises to pay if a loss happens. Whether you get anything back, and how much, is unknown when you sign. The Prophet forbade sales built on that kind of uncertainty, gharar (Sahih Muslim 1513). One side gains what the other loses by chance, which comes close to gambling, and insurers invest premiums in interest-bearing assets.
The OIC Fiqh Academy ruled in resolution 9 (9/2), and has since reaffirmed, that commercial insurance with a fixed premium is not permissible and that cooperative insurance is the permitted alternative. Mufti Taqi Usmani holds the same.
Takaful: the halal form
In takaful, members give contributions into a common fund as donations to help each other, and claims are paid from that fund. The operator manages it for a fee or a share of investment profit, any surplus belongs to the members, and the fund is invested only in halal ways. AAOIFI Shari’ah Standard 26 sets out how takaful must work. Check that the provider has its own Shari’ah board.
Insurance the law requires
Where the law makes cover compulsory, such as third-party car insurance, it may be taken. Take only what is required, and use takaful where it is available. What to do with a claim payout larger than what you paid in turns on your case, so ask a scholar personally.
Car, home, health and life cover
The same rule applies to each kind of cover: takaful where it exists, and only what is required where it does not.
- Car: the legally required minimum may be taken; extra cover taken by choice should be takaful.
- Home and contents: use takaful where it exists. If a lender or landlord requires cover and no takaful is available, ask a scholar about your case.
- Health: use takaful or a cooperative scheme where you can. If cover is required of you and has no takaful alternative, ask a scholar about your case.
- Life: conventional life insurance joins uncertainty with interest-bearing investment and is not allowed. Family takaful is the halal form.
Other views
Turkey’s Diyanet (its High Board of Religious Affairs, 2005) allows commercial insurance. This guidance follows the stricter Hanafi baseline.
People also ask
Is car insurance haram?
Conventional cover taken by choice is not allowed. The third-party cover the law requires may be taken, and anything beyond it should be takaful where available.
Is life insurance haram?
Conventional life insurance is not allowed: it joins uncertainty with interest-bearing investment. Family takaful is the halal form.
Is takaful really different from insurance?
Yes, when members’ contributions are donations to a mutual fund, any surplus belongs to them, the fund is invested in halal ways, and a Shari’ah board oversees it. A product that only renames a fixed-premium policy is not takaful.
What if my employer, bank or landlord requires insurance?
Cover that is required of you may be taken where no takaful exists. Because the details differ from case to case, ask a scholar personally.