Cooperative insurance is permissible, but commercial insurance is not as it involves acts like usury. It is accepted in case of necessity but it is better to establish Insurance companies with Islamic patterns.
A Muslim living in a non-Muslim country may need to take out an insurance policy, such as commercial, health, cooperative insurance, etc.
A distinction must be drawn between cooperative insurance and commercial insurance. The first is permissible but the second is not, although commercial insurance does become permissible if it is compulsory and required by the law of the land.
This is the ruling of the Assembly of Muslim Jurists of America, expressed at its second convention (fourth topic) and in the second decision of its fifth convention. It is also the ruling of the European Council for Fatwa and Research, the Indian Fiqh Assembly and the late Shaikh Muhammad ibn Uthaimeen.
The Assembly of Muslim Jurists of America and the European Council for Fatwa and Research also say that it is permissible to have insurance policies that may be essential, such as health insurance and some aspects of liability insurance, and the European Council for Fatwa and Research says it is permissible to have group insurance to bury the dead.
However, all councils are in agreement that Muslims should quickly establish insurance companies that apply the Islamic pattern of insurance to spare Muslims the need to have prohibited contracts. They also recommend that Muslims using such concessions in the interim period should ensure their insurance arrangements are with companies that apply some methods that are as close as possible to the cooperative insurance applied by Islamic insurance companies.
Commercial insurance involves several suspect or forbidden aspects, such as uncertainty, usury, gambling and unlawfully taking other people’s money, and as a result it is forbidden. What is permissible is only what is unavoidable because the law of the land makes it compulsory to have such insurance.
However, since a common need is treated as a necessity, when it is common to have health insurance, liability insurance or insurance to bury the dead, because one cannot meet the costs of burial or transporting the body to the deceased’s country, and there is no cooperative insurance system available, then the alternative insurance is permissible, even if this includes forbidden aspects.
On the other hand, cooperative insurance is based on cooperation and mutual help and comes under helping one another in furthering goodness and piety. As such it is lawful and any aspect of uncertainty it involves is overlooked because it is treated as a donation.
Decisions by the Assembly of Muslim Jurists of America.
Decisions and Fatwas by the European Council for Fatwa and Research.
Decisions of the Indian Fiqh Assemby.
Fatawa al-Aqaliyyat al-Muslimah by a number of scholars.
- The European Council for Fatwa and Research, Decisions 2-20, 2-8 and 5-10, and Fatwa No. 9-12; The Indian Fiqh Assembly, Decision 17 (1-5); Ibn Uthaimeen, Fatawa al-Aqaliyyat al-Muslimah, p. 85.