Dear Hadi,
Dear Reader,
Thank you very much for your question. The issue of the permissibility of life insurance is a controversial one that has been explored in significant detail by thoughtful and careful jurists.
As we’ve mentioned in several previous answers, we do not provide fatwas, but we will offer an overview of the positions on this topic and then give you our own opinion.
It appears the majority of scholars view life insurance as haram as they believe it involves prohibited elements. Specifically, these scholars say that life insurance involves:
- Riba (usury) when the insurance company invests your premiums in interest bearing investments;
- Gharar (excessive uncertainty) as it’s unknown if and when the payout would happen;
- Maysir (gambling/speculation) as the payout is based on chance (e.g. whether or not the insured will pass during the term period, or even if, for example, the insured has paid only one year of modest premiums but then upon his death, his estate reaps a much larger payout)
A very detailed paper by Dr. Jamaal Zarabozo outlining these and other issues can be found here: Life Insurance (Dr. Zarabozo)
In contrast to this, there are other scholars such as Professor Mustafa Al-Zarqa, that argue that traditional life insurance is allowed. These scholars, argue that the gharar (excessive uncertainty) is negligible, especially nowadays, as there are sophisticated statistical models that reduce uncertainty to acceptable levels. Furthermore, they argue that life insurance does not resemble maysir (gambling) as gambling is simply a game of chance, intended to increase the gambler’s wealth whereas traditional life insurance contracts are intended to provide for those in need upon the death of an individual whose livelihood was critical to family members left behind. Lastly, the interest-based investments made by the insurance company are incidental to the contract being entered into, rather than a primary objective.
A paper by Dr. K.M. Zakir Hossain Shalim lays out the perspectives of both opinions and cites much of Professor Al-Zarqa’s views, allowing the purchase of life insurance. The author (Dr. Shalim) concludes in favor of the view that life insurance is permissible in Islam under certain conditions which he outlines at the conclusion of his paper. This paper can be found here: Revisiting life insurance in Islamic Law (Dr. Shalim)
We are more convinced by the views of Professor Al-Zarqa, and we believe, and God knows best, that the purchase of life insurance for the purpose of providing for family members who would otherwise find themselves in a difficult financial position upon an individual’s passing is allowed.
In support of this position, we note the Prophet’s (pbuh) hadith found in al-Bukhari and Muslim which says, “It is better for you to leave your heirs well-off than to have them dependent, begging from people.”
The arguments as to whether insurance is haram or halal are extremely lengthy and extremely detailed, really requiring specialization in fiqh. These details are found in the two very lengthy and scholarly papers referenced above.
Much effort has also gone into exploring shari’a-compliant alternatives known as takkaful. This is a cooperative insurance model based on mutual assistance, eliminating riba, gharar, and maysir. Participants contribute to a pooled fund ("donations") and share risks together. This is generally agreed upon as halal.
However, with all due respect to the immense scholarship and effort expended in this matter, we would like to approach it more simply for Muslims living in the West. To us, the answer hinges on the issue of necessity.
Let’s assume, for argument’s sake, that life insurance is not permissible, and invoke the principle of necessity (although once again, we lean more toward the minority view of permissibility based on the arguments presented in both papers).
However, assuming that it is haram, we underscore that it is well-established in Islam that necessity obviates prohibition. This is seen in multiple Quranic verses which deal with dietary restrictions, such as:
Surah Al-Baqarah (2:173): "He has only forbidden to you dead animals, blood, the flesh of swine, and that which has been dedicated to other than Allah. But whoever is forced [by necessity], neither desiring [it] nor transgressing [its limit] - then indeed, Allah is Forgiving and Merciful."
Surah Al-An'am (6:119): Addressing disputes over what is permissible, this verse says, "...He has explained in detail to you what He has forbidden you, excepting that to which you are compelled."
The question then becomes, for each person to answer individually, whether life insurance is necessary for themselves and their families. As in the Quranic examples above, it is left to each person to set the dividing line between that which is desired versus needed versus truly necessary, and each person meets Allah SWT with their choices.
Most of us, we believe, would agree that shari’a compliant alternatives to life insurance, such as reliable takkaful programs, may not be easily attainable in Western societies. Likewise, we believe that most would agree that there are certain situations where the necessity for life insurance would be self-evident: for example, a single parent living close to the poverty line with young children to support, and without close family relations that can help. Also falling under necessity would be a single income family, where the father works and the mother stays home, and the family is fully dependent on the father’s income, and the mother and children would literally become homeless if the father were to die (which can happen quite easily in the West).
We believe that the judgement of necessity, while being left to each individual, should follow the usual contextual limitations or conditions which scholars have placed on the verses above. They should be applied to the issue of life insurance as well.
The conditions include:
Actual vs. Imagined Need: The necessity must be real, not merely a convenience or a preference. As opposed to the situations of genuine necessity noted above, a case where it is not necessary would be a wealthy family whose resources could insure a healthy steady income stream, but would want the insurance as “just a cushion.”
In this context, we note that there is a juristic debate between “need,” and “necessity.” Necessity would make the insurance permissible, while need which does not rise to the level of necessity would be a matter that requires closer examination, not which makes insurance automatically forbidden. That is because needs are also a legitimate purpose of the rules of sharia. Islamic scholars recognize Darūriyyāt (Necessities), as well as Hājiyyāt (Needs). For the “needs,” the shari’a would have rulings that remove hardship or difficulty in a way that improves the quality of human life. This includes flexible approaches to contracts and commercial transactions. For example, a traveler who is experiencing hardship may break their fast during Ramadan, even though it is not a dire necessity.
Absence of Alternatives: The forbidden option can only be taken if no lawful alternative is available to resolve the dire situation. Lawful alternatives may include shari’a compliant instruments from Islamic banks, or using a family’s reserve of wealth if that is available.
Limited Consumption: A person may only consume the amount necessary to survive and alleviate the immediate danger. They are not permitted to overindulge or eat beyond the point of necessity. In the context of life insurance, we would suggest term insurance until the children grow up, finish their education and become self-supporting. We feel that in this situation, a person is showing the requisite restraint of not indulging beyond the necessity. Thus, whole-life policies which never expire and provide a definite payout may be questionable.
No Sinful Inclination: The permission is only for those who have no desire or willful intention to commit a sin. The intent behind the action is a critical factor. Once again, each person needs to judge their own intent.
Finally, we return again to the objections which scholars opposed to life insurance raise:
Riba (interest/usury) practiced by the company to which one pays premiums.
Gharar (excessive uncertainty) – contracts with ambiguity over what is exchanged or when.
Maysir (gambling/speculation) – transactions based on chance or uncertain gain are prohibited.
We note that these exact objections can be raised against health insurance. We certainly do not believe, and would never advise, that health insurance is haram.
We hope this provides some context, and would advise you to read as much of the two long papers we provided above as you are able, and to make your decision trusting that your intent is a main factor and that Allah SWT is most merciful to His servants.
In peace.