Fatwa on Life Insurance

Answered by the Egyptian Fatwa House

Dear Sirs,

I request clarification of the legal status of family life insurance. I do not have a steady job and I am not insured through the government or elsewhere. I have heard that a government agency provides family life insurance, where one pays 100 EGP monthly for the duration of ten years. After this they return 20,000 EGP. In the event of death, the survivors are given the amount of all payments made up to the date of death in addition to profits accumulated to that date. Is there anything dubious about this? I hope to leave my children in a state of well being, not one of poverty.

Egypt’s Dar al-Ifta has in the past issued a response to a question similar to the enclosed answer. It may serve as an answer to this question as well:

Since insurance in its various forms is a novel transaction which the Shari‘a has not provided specific evidence concerning their legality or lack thereof – in this respect it is like bank transactions – engaging in it falls under the judgment of scholars and their research deduced from the general meaning of textual evidence, such as Allah Most High saying, “Assist one another in piety and being mindful of Allah, but do not assist one another in sin and enmity. Be mindful of Allah; indeed, Allah punishes severely”, and the saying of the Messenger of Allah , “The example of believers in their love, sympathy, and compassion for one another is similar to the example of a single body: when a single part complains it calls upon the others vigilance and for defense”. And there are numerous other texts on this topic.

There are three types of insurance:

1. Mutual Insurance, where a number of individuals or collectives compensate whatever harm befalls the others.
2. Social Security, which insures those whose livelihood depends upon income, from whatever hazards may befall them. It is established on the basis of social responsibility, and is operated by the government.
3. Commercial insurance, where companies sell shares with this goal in mind.

There is almost consensus that the first and second types conform with the general principles of Islamic Law since at their root is charity, helping one another in acts of piety and being mindful of God, and bring about social responsibility and mutual assistance amongst Muslims – without profit being an objective. The lack of knowledge [concerning the specific received service] and the inherent risk do not invalidate these two types. The amount received in addition to the paid premiums is not considered an unlawful increase [riba] since these premiums are not in exchange for deferred services, rather they are voluntary charity to compensate one for harm resulting from liabilities.

There is severe contention concerning the third type (commercial insurance) which includes personal insurance. While one group of scholars considers it an unlawful transaction because of its inherent risk is prohibited; and because of the inherent gambling, betting, and unlawful increase; the other group considers commercial insurance permissible and free of anything contrary to the Shari‘a since it stands upon a foundation of social responsibility and assisting one another in acts of piety, and at its root is voluntary charity – not compensation.

These others support their opinion using the general meaning of texts within the Qur’an and Sunnah, and through rational evidence.

The Qur’anic evidence includes Allah Most High saying: “O you who believe, fulfill contracts”. They say that the phrase “contracts” is general; it covers all types of contracts, including insurance. Had this type of contract been prohibited, the Messenger of Allah  would have clarified it. Since he did not clarify it, its general meaning stands and insurance is thus included in this text.

Evidence from the Sunnah includes what has been related from `Omar bin Yathrabi who said:

I witnessed the sermon of the Prophet  at Mina. His address included: “None of your brother’s property is licit, save what he gives willingly.”

So the Messenger of Allah  made the means for lawful ownership that the one who gives it does so with consent. With insurance both parties consent to taking property in a particular way, so it is permissible.

Rational evidence includes considering insurance analogous to commercial partnerships, which are among the types of legal transactions in Islamic Law. This is based on the insured party offering the capital in the form of insurance premiums; the insurer using the premiums for its investments; the profit for the insured party being the insurance return; and the profit for the insurer being the premiums and proceeds gained through investing the received premiums.

They also cited common practice as evidence, since it is common practice to use this type of contract, and custom – as is known – is a legal source – just like issues of public welfare not mentioned in primary evidence (al-maslahah al-mursalah). Likewise, there are numerous points of resemblance between commercial insurance [on one hand] and mutual insurance and social security which are unanimously considered lawful and in agreement with the principles of the Shari‘a [on the other], their ruling should apply to it and render it lawful.

Life insurance contracts are a type of commercial insurance. They are not among the contracts unlawful due to inherent risk since it is a contract to give voluntarily. It is not a contract for exchange – and thus nullified by risk – since its risk does not lead to disputes between the various parties because people make frequent use of it. [Furthermore,] it is widespread amongst the masses, spreading to all facets of their economic activities. And what people hold good and consent to without it leading to dispute is not forbidden.

Risk is conceivable when the contact occurs between an individual and a company. But when insurance enters into all aspects of economics, companies are the ones to handle insurance coverage for its employees, and each individual has prior knowledge of the amount he will pay and what it obtains – in this case unlawful, great risk is not conceivable. Likewise, commercial insurance is not tainted by gambling since gambling relies upon chance while insurance relies upon set principles and well-researched equations and calculations.

Through studying the various insurance policies issues from the Sharq Insurance Company (Sharikah al-Sharq li-l-Tamin) and others, it is clear that most of its articles are operational rules established by the insurance company – which become binding if the other party agrees to them – and that the basic content of most of these articles do not contravene Islamic law. Some articles, however, must be voided or changed in order to conform to Islamic law and agree with the decisions published by insurance company leaders under the leadership of the Mufti of Egypt, on 25/3/1997 at Dar al-Ifta. The following articles need to be changed:

1. “Returning the complete amount of the premiums if the insured party is still alive at the end of the insurance contract,” must be replaced with: “Returning the complete of the premiums if the insured party is still alive at the end of the insurance contract, including all earnings after subtracting a specified fee to cover the company’s services.”
2. The second article includes that in the event that the party does not pay his bill which has been sent by registered mail within a certain period, or in the event that the premiums for the first three years are not paid, the policy will be considered void without need of any warning and the premiums become the rightful earnings of the company.” This must be replaced with: “Paid premiums will be returned after deducting an amount not to exceed 10%, to cover the work performed by the company” so that the company does not unjustly usurp other people’s money.
3. The thirteenth article, in the first paragraph, includes: “The right to claim any rights derived from the insurance contract is voided if its beneficiaries fail to claim them, or fail to provide the company with a proper death certificate” must be cancelled since a right cannot be voided under any circumstance once it has been established – even in the event that its rightful beneficiary fails to seek it. Replace it with: “Unclaimed returns will be placed in the Muslim common fund (bayt al-mal) if left unclaimed for ten years.”The second paragraph of the same article includes: “…just as beneficiaries lose the right to raise a claim against the insurance company seeking rights derived from the contract once three years have passed since the death of the deceased.” This paragraph must be replaced with: “The right [to collect] is lost after 33 years – the limit for making claims as set by legists of Islamic law.”

Insurance in all of its various forms has become a social necessity. Life’s circumstances make it incumbent and one cannot do without it because of the large number of employees in manufacturing in both the public and private sectors. Today, companies protect their capital investment so that it can fulfill its intended purpose of protecting the economy which is the sinew of life. Companies today protect employees with the goal of guaranteeing their lives now and in the future. The goal of insurance is not profit or religiously-unlawful income. Rather, its is for social responsibility and security, and to assist in removing harm that befalls individuals from accidents and disasters. Insurance is not some sort of compulsory tax, but rather solidarity and helping one another in good works and putting others first – both of which Islam orders.

Nations of the world use insurance to raise their communities and advance their peoples. Islam has not slammed shut this door on its followers since it is a religion of advancement, civilization, and organization. There are scholars, past and present, in all regions of the Islamic world, who permit it and declare it lawful; they have their evidence and some of it we have mentioned above.

Egypt’s Dar al-Ifta is of the opinion that there is no religious prohibition barring one from using the various forms of insurance. We hope for an increase in its coverage so long as it enables more and more uninsured individuals to be covered. Monthly or yearly premiums should be a reasonable amount; it should be compulsory so everyone becomes accustomed to saving on the basis that the premiums they pay will return to them with profits – which are useful to them and their country. Advanced communities and great societies are those that teach their children to save money and use it to benefit their religious life and their future.

And Allah Most High knows best.