Full Lecture Transcript (Cleaned)
Introduction — 0:17
One of the most common questions that I've been asked is about the issue of insurance. So I'm going to answer all of these questions today, and because the topic is so long and detailed, it will be our only question for today.
The topic for today is: what is the position of our scholars with regards to the overall topic of insurance—whether it is commercial insurance, house insurance, car insurance, or life insurance? What is the opinion of scholars about insurance?
What Is Insurance? — 0:55
Insurance, as we all know, is a form of risk management where lots of people come together—these are the policyholders—and they pay a company (the insurance company) a known fee to protect them against an unknown event or an uncertain future event.
The concept of insurance was not around in the time of the Prophet (peace be upon him) or the Sahaba. When the Quran was revealed, the people were not doing these types of transactions. In fact, insurance is a relatively modern phenomenon.
A Brief History of Insurance — 1:22
Insurance only began in the 17th century after the Great Fire of London in 1666. London was engulfed in flames—I think a quarter or half the city was destroyed, tens of thousands of houses were destroyed. And so the concept came about: what if we could somehow protect the value of our property and pay a fee to a company so that we can gain back the protection of our house? This began the concept of house insurance.
In fact, our own Founding Father Benjamin Franklin, when he came to America, actually founded "The Philadelphia Contributionship for the Insurance of Houses from Loss by Fire."
Within a few decades, England—at this time a naval superpower—saw rich merchants sending their ships overseas, not knowing what would happen to their merchandise. Would a pirate attack? Would some issue take place and all of their money be lost? These merchants came together, and over coffee discussions at a coffee house in London, the notion came about: what if we were to pay a fee so that in case something happens, we will get our money back?
Hence in 1774, Lloyd's of London—still one of the largest insurance companies in the world—began offering what we now call business or merchandise insurance. Around the same time, the concept of life insurance also came about.
Interestingly enough, it was only after great crises that insurance became common. For example, it was after the American Civil War, when so many people died, that men who were still alive said, "We should have life insurance on ourselves in case we die." The largest spike in life insurance happened after World War I, when hundreds of thousands of people died—those left alive thought they might as well get insurance.
How Insurance Companies Make Profit — 4:01
A lot of us wonder: how can these insurance companies make a profit? You're paying $100–$200 per month, and then when you need them, they're going to pay you $10,000, $20,000, or $30,000. For life insurance, the goal might be to get half a million dollars.
The answer is by pooling a large amount of people's money and then aggressively investing that money in bonds or other profitable enterprises, and also sometimes giving banks that money to earn interest. The insurance company calculates: if all of these people give to the company, how many will actually need payouts at any given time? Not all of them—a small percentage.
So the insurance company takes a large pool of cash from lots of people, aggressively makes guaranteed profit through bonds and interest, and calculates that only a minimal percentage will claim the money back. Overall, they make a profit.
Simplistically, insurance companies make a profit from two sources:
There's nothing inherently wrong with the goal of making a profit—every company wants to make a profit. Insurance companies have armies of statisticians, mathematics experts, and sociologists who calculate complex equations of trends in human society.
Why Insurance Is Problematic in Islamic Law — 6:44
However, the issue is that insurance companies are different from other businesses in that there's no tangible item being sold and no actual service being given. When you buy a car, food, software, or hire someone to clean your house—you're buying something tangible that you can measure.
Insurance is not something tangible. Rather, it is paying money to guarantee the return of money in an unlikely event of an accident or misfortune—or, in the case of life insurance, in the likely and inevitable event of death.
The Scholarly Consensus — 7:58
Insurance is a modern issue—you won't find statements from classical scholars about it. Even Ibn Taymiyyah did not write about insurance; it didn't exist in his time.
However, interestingly, one of the greatest scholars of the Maliki madhhab, Imam al-Hashab (died approximately 400 AH), in his famous book gave a theoretical example that essentially describes insurance. He wrote that it is not allowed for a person to say to another, "I will give you this much money to protect my merchandise to such-and-such a time," because there is gharar (uncertainty) and qumar (gambling) in these contracts.
The overall attitude of modern scholars has been to problematize and generally prohibit the concept of insurance as it currently exists.
There is a concept called Takaful (cooperative insurance), which is a mutually pooled resource system that some scholars have said is an alternative. However, in today's lecture I will not discuss it for one simple reason: it doesn't exist in the Western world right now. Some countries like Malaysia are attempting alternatives, but nothing practical exists in the West.
The Four Reasons Insurance Is Prohibited — 11:15
The overall position of pretty much most scholars of Islam, from the 1700s up until our times, is that conceptually speaking, the contract of insurance is not a valid contract in accordance with the principles of Islamic law. They give four primary reasons:
1. Gharar (Excessive Uncertainty) — 13:43
This is the biggest reason. Gharar means uncertainty—any transaction in which you do not know what you are getting. This transaction is forbidden by the unanimous consensus of all the madhhab scholars of Islam.
The hadith in Sahih Muslim states that Abu Hurayrah narrated that the Prophet (peace be upon him) forbade bay' al-hasat (the transaction of stones) and bay' al-gharar (the transaction of uncertainty).
Bay' al-hasat was a transaction in Jahiliyyah where a seller would have merchandise and the buyer would throw a stone—whatever pile it fell on, that would be his purchase. Another version: "I will purchase your land as far as my rock can go." These involve clear uncertainty.
You cannot purchase an unknown. The contract must be clear: what are you buying, for how much, when is the payment going to occur? If there is extreme uncertainty, the contract becomes null and void (batil) according to all scholars.
Important footnote: What is forbidden is the essence of the contract being unknown, not small details. When you purchase a car, you know the overall state; a small scratch underneath doesn't invalidate the contract. This is called gharar yasir—a negligible amount of uncertainty that is overlooked.
An interesting modern example: all-you-can-eat buffets. Is this extreme gharar or negligible? Most scholars of our times say it is overlooked gharar because restaurant owners have calculated average consumption. But some of my teachers were stricter and said it is not allowed because one person might eat four or five times what another eats.
In the insurance transaction, what are you getting back for what you pay? This is extreme gharar. You pay premiums every month, and it is possible for 15–30 years you never need anything. And it is possible that the next month, something happens and the insurance company pays you half a million dollars. If this isn't gharar, what is?
2. Riba (Interest) — 21:39
The issue of riba (interest) being inherent in insurance is self-evident. When it comes to exchanging money in the Sharia, if it is the same currency, two conditions must be met: same amount and spot trade. If different currencies, you must know the amount at the time of exchange.
In insurance, when you give the company money, what are you going to get back? Money. Do you know how much? No. This is the essence of interest—exchanging money at unknown rates. You pay $50 per month for years, then something happens and they give you half a million.
For advanced students: both types of riba are present in insurance—riba al-fadl (different quantities of the same currency) and riba al-nasi'ah (deferred exchange). In an insurance contract, neither condition is met.
3. Qumar (Gambling) — 24:56
There is an element of gambling: you put a small amount in and your goal is to get a large amount back—just like buying a lottery ticket. However, in my humble opinion, this is not the strongest argument on its own. One could argue that investing in stocks has a similar element, yet stocks are generally halal. Qumar is one point to add to the list, but the first two reasons are open and shut.
4. Goes Against Belief in Qadr (Divine Decree) — 12:29
Some scholars argue that having insurance goes against tawakkul and belief in qadr. In my humble opinion, this should not be on the list at all. Belief in qadr is one thing, and using reasonable precautions is another. If insurance were halal, it would be something we should do to protect ourselves—just like we install fire detectors, wear armor in battle, and as the Prophet (peace be upon him) said, "Tie your camel, then put your trust in Allah." It is part of qadr to use our natural resources to protect ourselves against calamity.
Historical Background of the Fatwa — 26:44
The first scholar we know of to ever issue a fatwa about insurance was one of the greatest ulama of the Hanafi madhhab: Ibn Abidin al-Hanafi (d. 1784), who wrote the famous book Radd al-Muhtar. In 1784, while insurance was just emerging in England, Ibn Abidin—living in Damascus—wrote a detailed fatwa examining the contract of insurance and laid the skeletal foundations for all later scholars.
After him, it simply became the standard position. I do not know of any council of fiqh scholars in the world—and there are over a dozen—that has said the concept of insurance is halal. This includes:
- The Council of Senior Scholars of Saudi Arabia
- The Kuwaiti Council of Scholars
- The Rabita (Muslim World League)
- The Majma' al-Fiqh al-Islami
- The Council of Scholars of Islamic Finance (the largest such body in the world)
Dissenting Opinions — 28:54
Did anybody disagree? Yes. There is a handful of names known to have atypical views—their knowledge is respected and their reputation is established, but they are known to be outside the mainstream.
Perhaps the most famous among them is Dr. Mustafa al-Zarqa and also Dr. Abdul Wahhab Khallaf—two global scholars who were world-famous in the 1970s–90s. Dr. Zarqa argued:
- There is no gharar because companies do their due diligence in assessing and minimizing risk
- There is tangible benefit: peace of mind
- He compared it to hiring a security guard—you pay a guard an amount of money without knowing how much work he'll need to do
The Critical Distinction: Theory vs. Application — 33:26
This is where many good Muslims fall into an error. The Sharia may declare something forbidden in the abstract, but at times the application in a particular context becomes permissible because of the context. This is something every scholar worth his salt knows.
The average Muslim wants to know the abstract ruling and considers the case closed. When a scholar says, "Yes, that is the abstract, but in this situation it is permissible," some Muslims feel the scholar has betrayed the Sharia. But there is no contradiction: pretty much everyone says insurance is haram, and pretty much everyone says in some cases it becomes permissible because of the context.
This is the reality of fiqh—taking the theoretical abstract is easy, even for a beginning student. But applying it is the difference between a medical student and a doctor of 30 years.
The Fatwas of Major Fiqh Councils — 35:37
The same councils that said insurance is haram without exception then come back and say: however, in such-and-such circumstances, it is permissible.
All fiqh councils that look at the situation of Muslims in minority lands give concessions in some scenarios.
European Council for Fatwa and Research — 39:00
The European Council—which at the time had Shaykh Yusuf al-Qaradawi as its head, along with scholars like Faysal Mawlawi, Abdullah al-Judai, and al-Kharid—issued a detailed fatwa (Ruling No. 25/7-6):
According to the vast majority of scholars of Islam, insurance is not in accordance with the principles of Islamic law. But in light of the goals of the Sharia and the situation of Muslims in Europe, there are situations where it would be permissible.
They listed three specific examples:
Life Insurance — 41:07
The European Council paused discussion on life insurance initially, then in a later fatwa (No. 30/2-8), they concluded that life insurance is not permissible and does not meet the criterion for hardship (darurah). They made only two exceptions:
- If the employer provides it automatically without requiring the employee to opt in
- Government programs like Social Security
AMJA (Assembly of Muslim Jurists of America) — 42:58
AMJA has also issued fatwas stating:
- Car insurance is mandatory and you cannot live in this land without a car, so it is permissible. Muslims should get the minimum amount possible.
- Health insurance is permissible because healthcare is prohibitively expensive in America.
- Muslims should also push for social reform to achieve universal healthcare, because when the government provides it through taxes, there is no Islamic issue.
Working in Insurance Companies — 44:14
Both the European Council and AMJA have looked into this issue with similar conclusions:
- The default is that it is not allowed to work in commercial insurance companies.
- Exception: If a person is unable to find another job, they may work in insurance temporarily—but must actively seek alternative employment and not accept it as permanent.
- Another exception: If you work for a third-party company (e.g., as a consultant) and your employer assigns you to an insurance company, this is permissible because your contract is with the third-party employer (which is halal), not with the insurance company directly.
Conclusion — 47:17
It is very clear that theoretically speaking, the concept of insurance has major problems and goes against a number of fundamental tenets of Islamic finance. Nonetheless, in circumstances where:
- Life becomes unreasonably difficult without it
- It is not possible to live a regular life without it
- The government requires it
The practical rulings for Muslims living in Western countries:
- Car insurance: Permissible (get minimum required)
- Health insurance: Permissible (due to prohibitive healthcare costs)
- House/property insurance: Permissible (to protect against catastrophic loss)
- Life insurance: Not permissible in standard form (exceptions for employer-provided or government programs)
- Working in insurance: Avoid if possible; temporary exception if no other employment is available