Life Insurance: Mustafa Al-Zarqa's Views
Adil Salahi, March 4, 2005
Every now and then I get questions about life insurance. Is life insurance is permissible from the Islamic point of view — this is most of the readers want to know. The attraction to take a life policy, says some of the readers, seems too strong when one considers the need for safety in life. My answer to all such questions is:
Insurance has become an essential part of business throughout the world. Because there are too many risks that could affect people’s 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 came of age and were 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.