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?

In the Name of Allah, Most Gracious, Most Merciful.

All praise and thanks are due to Allah, and peace and blessings be upon His
Messenger.
Dear questioner, we would like to thank you for the great confidence you place in us,
and we implore Allah Almighty to help us serve His cause and render our work for His
Sake.

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.

Permissibility of Life Insurance

Adil Salahi
Arab News, 2/9/04
Q. Could you please explain whether life insurance is permissible from the
Islamic point of view. The attraction to take a life policy seems too strong when
one considers the need for economic security in life.
M. Arifuddin (Riyadh) & S. Ahmad (Madinah)
A. Insurance has become an essential part of business throughout the world.
Because there are too many risks that could affect peoples lives and welfare,
insurance tries to alleviate the adverse effects of such risks. Insurance has
become a highly sophisticated business, with large companies offering cover
against a wide range of risks. People take out insurance policies to protect their
homes, furniture, vehicles, and jobs, and they also take out health and life
insurance. In its modern form, insurance was introduced in Muslim countries
when many of them were occupied by Western powers, or when they came
under Western influence. In some cases, its introduction was delayed in a
country until its international business flourished. Like every thing that came with
a colonial or Western color, insurance was first viewed by Muslim scholars with
grave suspicion. A verdict of disapproval was common to most things thought to
be introduced by non-Muslims.
Yet insurance is not new, and it was not invented by the Western civilization. The
idea of collaboration to reduce the effects of disaster that might hit one or more in
a community is as old as human society. In many Muslim cities, business people
collaborated, establishing funds to look after anyone of them who might suffer a
huge trade loss, as could happen when a cargo ship sank during a storm. While
these early efforts catered for a specific risk, the idea behind them is the same as
that behind insurance.
In the last few decades, a number of eminent scholars discussed insurance at
length, arriving at divergent views. One of the best theses written on the subject
was published in a book in Arabic by the late Prof. Mustafa Al-Zarqa, who ranked
high among the top scholars of the twentieth century. His work is very scholarly,
as it shows thorough understanding of the insurance system and how it works.
He arrives at a verdict of permissibility of all types of insurance, including life
insurance. He points out that insurance inevitably involves an element of gharar,
which in Islamic terminology means the sale of an undefined or unspecified
product. However, he explains that it is rather marginal, and as such it is
overlooked, as in other types of transactions involving marginal gharar.

There are two main types of life insurance: term policy and endowment policy.
The term policy involves the payment by the insured of modest premiums over
an agreed period, say, 20 years, in return for the benefit of his family receiving an
agreed large sum of money in the case of his death during that period.
If the insured remains alive at the end of the policy, it lapses and he gets nothing.
What the insured actually buys with his payments is the peace of mind he gets
from the knowledge that should he die, his dependants will have a large sum of
money to see them through life until, say, his young children come of age and are
able to look after themselves.
The endowment policy involves the payment of larger premiums which are
invested by the insurance company. When the policy matures, the insured
receives the sum assured as well as any share of profits to which he may be
entitled under the terms of investment made on his behalf by the insurance
company.
Both types are permissible from the Islamic point of view, as explained by
Professor Al-Zarqa, provided that the insured makes sure that the insurance
company invests in legitimate business. If the insurance company invests in what
Islam forbids, then taking out its policies becomes forbidden as a result.

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.
Takaful is an Islamic insurance concept which is grounded in Islamic muamalat (banking
transactions), observing the rules and regulations of Islamic law. This concept has been
practised in various forms for over 1400 years. It originates from Arabic word Kafalah,
which means "guaranteeing each other" or "joint guarantee". In principle, the Takaful
system is based on mutual co-operation, responsibility, assurance, protection and
assistance between groups of participants. It is a form of mutual insurance.
These fundamentals are based on the sayings of Prophet Mohammed(S.A.W.S). Based on
the hadith and Quranic verses mentioned below, Islamic scholars had decided that there

should be a concerted effort to implement the Takaful concept as the best way to resolve
these needs. Some of the examples are:
* Basis of Co-operation Help one another in al-Birr and in al-Taqwa (virtue,
righteousness and piety): but do not help one another in sin and transgression. (Surah AlMaidah, Verse 2)
* Allah will always help His servant for as long as he helps others. (Narrated by Imam
Ahmad bin Hanbal and Imam Abu Daud)
* Basis of Responsibility The place of relationships and feelings of people with faith,
between each other, is just like the body; when one of its parts is afflicted with pain, then
the rest of the body will be affected. (Narrated by Imam al-Bukhari and Imam Muslim)
* One true Muslim (Mumin) and another true Muslim (Mumin) is just like a building
whereby every part in it strengthens the other part. (Narrated by Imam al-Bukhari and
Imam Muslim)
Basis of Mutual Protection By my life, which is in Allahs power, nobody will enter
Paradise if he does not protect his neighbour who is in distress. (Narrated by Imam
Ahmad bin Hanbal)
The basic fundamentals underlying the Takaful concept are very similar to co-operative
and mutual principles, to the extent that the co-operative and mutual model is one that is
accepted under Islamic Law."
The principles of Takaful are as follows:
* Policyholders co-operate among themselves for their common good.
* Every policyholder pays his subscription to help those that need assistance.
* Losses are divided and liabilities spread according to the community pooling system.
* Uncertainty is eliminated in respect of subscription and compensation.
* It does not derive advantage at the cost of others.
Takaful is an alternative form of cover that a Muslim can avail himself against the risk of
loss due to misfortunes. Takaful is based on the idea that what is uncertain with respect to
an individual may cease to be uncertain with respect to a very large number of similar
individuals. Insurance by combining the risks of many people enables each individual to
enjoy the advantage provided by the law of large numbers.
In modern business, one of the ways to reduce the risk of loss due to misfortunes is
through insurance which spreads the risk among many people. The concept of insurance
where resources are pooled to help the needy does not contradict Shariah. However,
conventional insurance involves the elements of uncertainty (Al-gharar) in the contract of
insurance, gambling (Al-maisir) as the consequences of the presence of uncertainty and
interest (Al-riba) in the investment activities of the conventional insurance companies
that contravene the rules of Shariah. It is generally accepted by Muslim jurists that the
operation of conventional insurance does not conform to the rules and requirements of
Shariah.
Theoretically, Takaful is perceived as cooperative insurance, where members contribute a

certain sum of money to a common pool. The purpose of this system is not profits but to
uphold the principle of "bear ye one anothers burden." Commercial insurance is strictly
not allowed for Muslim as agreed upon by most contemporary scholars because it
contains the following elements: i) Al-Gharar (Uncertainty) ii) Al-Maisir (Gambling) iii)
Riba (Interest)
There are three (3) models and several variations on how takaful can be implemented:
* Mudharabah Model
* Wakalah Model
* Combination of both
The Qur'an prohibits gambling (games of chance involving money). The hadith, in
addition to prohibiting gambling (games of chance), also prohibits bayu al-gharar (trading
in risk, where the Arabic word gharar is taken to mean "risk").
The Hanafi madhab (legal school) in Islam defines gharar as "that whose consequences
are hidden." The Shafi legal school defined gharar as "that whose nature and
consequences are hidden" or "that which admits two possibilities, with the less desirable
one being more likely." The Hanbali school defined it as "that whose consequences are
unknown" or "that which is undeliverable, whether it exists or not." Ibn Hazm of the
Zahiri school wrote "Gharar is where the buyer does not know what he bought, or the
seller does not know what he sold. The modern scholar of Islam, Professor Mustafa AlZarqa, wrote that "Gharar is the sale of probable items whose existence or characteristics
are not certain, due to the risky nature that makes the trade similar to gambling." There
are a number of hadith who forbid trading in gharar, often giving specific examples of
gharhar transactions (e.g., selling the birds in the sky or the fish in the water, the catch of
the diver, an unborn calf in its mothers womb etc.). Jurists have sought many complete
definitions of the term. They also came up with the concept of yasir (minor risk); a
financial transaction with a minor risk is deemed to be halal (permissible) while trading
in non-minor risk (bayu al-ghasar) is deemed to be haram.
What gharar is, exactly, was never fully decided upon by the Muslim jurists. This was
mainly due to the complication of having to decide what is and is not a minor risk.
Derivatives instruments (such as stock options) have only become common relatively
recently. Some Islamic banks do provide brokerage services for stock trading and perhaps
even for derivatives trading.