Is insurance haram?

Why the scholars prohibit it

The prohibition is not a blanket rejection of the word "insurance". It is a ruling on what the commercial contract actually is. Shaykh Ibn Uthaymeen explains that the insured pays a fixed premium and then either receives far more than he paid, or receives nothing at all, or receives less than he paid — and a contract whose outcome is that uncertain is a contract of gharar, which the Prophet ﷺ forbade.

"The Messenger of Allah ﷺ forbade the pebble sale and the sale involving uncertainty."— Sahih Muslim 1513, from Abu Hurayrah

Shaykh Ibn Uthaymeen then ties gharar to gambling: the uncertainty means one party may take a large payout for a small stake, which is the essence of maysir. Shaykh al-Albani makes the same argument in more concrete terms — a man may pay premiums for thirty years and never have an accident, while another crashes his new car after the first instalment and is given a replacement. The money for that replacement comes from the premiums of the other subscribers, not from the company's own pocket. That, he says, is gambling.

The Permanent Committee adds a further ground: the contract also involves riba, ignorance of what is being exchanged, and consuming people's wealth unjustly. And because the company's work is itself built on this, the Committee rules that a Muslim may not take employment with a commercial insurance company, even in a clerical role, since that is cooperating in sin.

"And cooperate not in sin and transgression."— Qur'an 5:2

The two kinds of insurance

The scholars do not treat all insurance alike. The distinction is the purpose of the contract, not its name.

Shaykh Ibn Baz describes the cooperative form as a group — the people of a village, a tribe, a neighbourhood or a family — each contributing a set amount monthly or yearly, purely to help whichever of them is struck by loss: to pay blood money, to settle a debt, to assist the poor. He says plainly that this is a good deed, and that if they appoint someone to invest and grow the fund for a share of the profit, on a mudarabah basis, there is no harm in that.

IslamWeb draws the same line. Cooperative insurance is founded on donation, not profit, so it falls under cooperation in righteousness and is permissible — though it notes it is regrettably little used. Commercial insurance, which originated in the West and is what most people actually deal with, is not permissible because of the ignorance and uncertainty in it.

When you are forced into it

The scholars recognise that in many countries commercial insurance is compulsory. Shaykh Ibn Baz was asked exactly this and answered that the insurance itself is not permissible, being from gambling — but if a person is compelled to it, there is no blame on him, provided he takes only what he paid.

"And He has already explained to you what He has forbidden to you, except when you are compelled by necessity."— Qur'an 6:119

Shaykh al-Albani makes the same exception for what is called partial insurance, which drivers in some countries are forced to buy: it is like a tax imposed on them, and if they cannot avoid it without their lives being disrupted, they are excused. He is explicit that the concession is only for compulsion, not preference.

What is not excused is deception. Ibn Baz was asked about Muslims who lie and cheat the insurance company to reduce their payment, and he answered that such dealings are not permissible at all — a Muslim must avoid lying and deceit, and the concession for necessity does not license fraud.

What this means in practice

• Check what you are actually buying. If it is a commercial policy — a company collecting premiums and paying out for profit — the ruling above applies.
• If it is compulsory, you may participate under necessity, and you should take only what you paid in.
• If it is voluntary, the scholars' position is to avoid it and to seek a cooperative or takaful alternative where one exists.
• Do not deceive the insurer to lower your premium. The necessity concession does not extend to lying.
• Do not take a job with a commercial insurer, even a desk job, per the Permanent Committee.

Key takeaways

• Commercial insurance is prohibited by Shaykh Ibn Baz, Shaykh Ibn Uthaymeen, Shaykh al-Albani and the Permanent Committee, on grounds of gharar, riba and gambling.
• Cooperative insurance is permitted, because it is built on donation and mutual support, not profit — a position affirmed by the senior scholars' bodies.
• If you are legally compelled to hold commercial insurance, you are excused, but you should take only the amount you paid in.
• Lying to an insurance company to reduce your premium is not permitted, even under compulsion.
• Working for a commercial insurance company is itself prohibited, since it is cooperation in sin.

Further reading

• Shaykh Ibn Baz, Majmu' Fatawa wa Maqalat Mutanawwi'ah
• Shaykh Ibn Uthaymeen, Fatawa Nur 'ala al-Darb
• Shaykh al-Albani, Jami' Turath al-'Allamah al-Albani fi al-Fiqh

And Allah knows best.