Generally, in today’s time, we experience ease and convenience. Yet, the very same things that become the means of ease may become a means of harm and problems. For example, the advent of new dimensions of business may lead to losses of funds or trade with high risk being involved. A form of such loss in the form of business is known by the name of “insurance.” Insurance has taken over and we need to understand it further.
Understanding Insurance
The various types of insurances that are available include the following: Goods Insurance, Medical Insurance, Car Insurance and Life Insurance. There are various other types of insurances also other than these. It is important for us to understand what really is insurance and how the companies providing insurance work.
For example: a buyer purchases a car worth Rs. thirty (30) lacs. As the car is an expensive commodity, an accident of course will result in being a great loss. The buyer would go ahead and purchase a Car Insurance Policy to protect himself from the loss in case of an accident. The way the company works is that it creates a policy against the value of the car and provides it to its buyer. If the car is worth Rs. 30 lacs, the insurance may be for ten (10) lacs. This may be applicable over a time period of maybe two to five years. The buyer of the insurance policy now has to pay off the amount of Rs. 10 lacs over a specified time in a form of instalments. If in between this time period, a car accident occurs, the buyer can claim the insurance and be paid an amount of Rs. 10 lacs regardless of the fact how much money has been paid against the insurance over the span of that time. The insurance company is liable to pay the buyer a complete amount in all cases.
Goods Insurance work in a similar manner. When a buyer purchases a product internationally, he/she also purchases a Goods Insurance against that product to protect from damages.
If we are to assess this procedure in light of Shariah, we understand its impermissibility.
The first thing that is clear is the fact that in Shariah, there is no prohibition to safeguard oneself from an unforeseen loss. There is nothing wrong with the concept of risk management. In fact Allah (عَزَّوَجَلَّ) says in the Qur’an:
وَلَا تُلْقُوا بِأَيْدِيكُمْ إِلَى التَّهْلُكَةِ
“and do not throw [yourselves] with your [own] hands into destruction [by refraining].”
[Al-Baqara:195]
It is evident from this verse that there is nothing wrong if a person adopts safety measures or protective measure. Now insurance is not a matter that falls under the same category and scholars have deemed it impermissible (haram). The reason for its forbidding is usury or riba.
Aspect of Interest in Insurance Policies
The value of the product that is being purchased or sold has to stay the same. There cannot be a difference in the value of the good. For example, if a buyer purchases an insurance worth Rs. 10 lacs and the payment is started in fixed instalments. The buyer had only paid Rs. 2 lacs against the insurance policy when an accident occurs. The buyer puts in a claim to the company against his insurance worth Rs. 10 lacs. Although he was only able to pay the sum of Rs. 2 lacs, upon an accident his claim would be a total of Rs. 10 lacs from the company. This clearly falls under usury and is haram.
Aspect of Gambling in Insurance Policies
In addition to the inherent quality of usury, Insurance Policies includes qualities of gambling. Gambling is when to parties are engaged in such a contract where neither of them are aware whether they will benefit from the deal or lose. The end results are not defined.
In the example of the car insurance, there is a contract between the purchases and the company. In this contract, neither party knows what the end result of the contract will be. Will the company obtain all of the money or lose all of it or will the buyer reap benefits of paying less than what was claimed. If an accident occurs in the initial days after the policy has been purchased and the buyer claims the insurance, the company has to pay an entire amount of Rs. 10 lacs by having only received an amount of Rs. 1 or 2 lacs from the customer. This takes the form of gambling.
Some people justify this by saying that this is only for the satisfaction of the heart. It comforts them to know that in case of circumstantial crisis, they will be compensated. There is no harm to want fulfillment of the heart as long as it does not contradict the Sharia or is deemed forbidden in any manner. The matter has to be within the limits prescribed by Allah (عَزَّوَجَلَّ), the Lord of the universe. To say that one is keeping all life-savings in the bank so they remain safe but also expect to get a handsome interest amount on it, is not acceptable by any means.
Similarly, all types of insurances whether it be of goods, life or car is also a form of interest and gambling. They are all forbidden in their technicality. Hence, the Shariah has clearly called it haram or forbidden.
Medical Insurance, on the other hand is taken a bit differently than the above mentioned insurances. In this are both allowance as well as forbiddance. This will be covered in the coming articles, InSha’Allah.
May Allah (عَزَّوَجَلَّ) protect us from the forbidden acts in business and trade and guide us to an acceptable and halal means of earning. Aameen
