Comprehensive Auto Insurance
Is it permissible to get auto insurance on trucks for the purpose of obtaining financial compensation in the event of traffic accidents, auto fire or theft?
Dar al-Ifta al-Misriyyah previously answered a similar question in Fatwa no. 520, issued on 27 May 1997 and the answer was as follows:
Similar to bank transactions, insurance in its various forms is a novel transaction and there is no textual evidence in Islamic law about its permissibility or prohibition. Therefore, insurance falls under the ijtihad (speculation) of scholars and their research deduced from the general implications of various evidences in primary texts such as the words of Allah Almighty:
And cooperate in righteousness and piety and do not cooperate in sin and aggression. And fear Allah; indeed, Allah is severe in punishment.
And the words of the Prophet [pbuh]: "The examples of believers in their love, sympathy and compassion for one another is similar to the example of a single body; when one of its organs complains, the other organs respond with sleeplessness and fever" [Al-Bukhari].
Types of Insurance
1- Mutual Insurance: where a number of individuals or groups contribute to compensate damages that befall others.
2- Social Security: an insurance program that caters to wage earners and provides security against certain circumstances. This type of insurance is based on the concept of social welfare which is operated by the state.
3- Commercial Insurance: joint stock companies that are established for this purpose.
Mutual Insurance and Social Security
There is almost total consensus (amongst the scholars) that the first and second types of insurance conform to the principles of Islamic law since at their core, they are donations; cooperation in righteousness and piety and fulfill the principle of social welfare and cooperation between Muslims without the objective of making profit. Lack of knowledge and risk do not invalidate mutual insurance and social security. The money received above the value of the premiums is not considered riba [Interest] because they are not in exchange for deferred services but are donations intended to compensate for sustained damages.
There is a fierce contention among scholars concerning commercial insurance which includes Personal insurance. A group of scholars contend that this type of insurance is unlawful because it includes elements of risk which is prohibited in Islamic law, gambling, betting and interest. Others maintain that it is permissible and does not contradict the principles of Islamic law, since it is based on social welfare and cooperation in righteousness and piety and because it is a form of donations and not compensations.
The basic premise on which the latter group of scholars base their opinion is the general meanings of texts from the Qur`an and Sunna as well as rational evidences.
In the Qur`an, Allah Almighty says:
O you who believe, fulfill [all] contracts.
They maintain that the term "contracts" is general and includes all the various types, insurance or otherwise. They further contend that, had this type of contract been unlawful, the Messenger [pbuh] would have clarified its prohibition. Since he did not, the general meaning of the term 'contracts' stands.
The evidence they deduced from the Prophet's teachings includes a report from 'Umar ibn Yathribi, who said: "I witnessed a sermon by the Prophet [pbuh], which he gave at Mina, in which he said: 'A person's property is unlawful upon his brother save what he gives willingly.' The Prophet's [pbuh] directive in this respect is freedom of will. In insurance contracts, both parties, the insurer and the insured, agree upon taking property in a certain way, making this contract lawful.
From among the rational evidences, scholars who maintain permissibility, cite that insurance policies include contributions made by both parties to the contract, whereby the insured pays a monthly premium and the insurer pays the value of the policy by way of distributing liabilities and assisting the person who faces them—a concept that is free of any legal interdiction.
Furthermore, scholars cite common practice among the basis of permissibility, since customs are among the sources of legislation in Islamic law. Likewise, they urge the permissibility of insurance due to maslahah mursalah [general public interest]. And, since they share many similarities, commercial insurance should take the same ruling as mutual insurance and social security both of which are sanctioned in Islamic law.
This is among the various forms of commercial insurance and it is lawful since it not among the contracts which include the element of gharar [risk] which is prohibited since it is a contract of contribution and not commutation which is nullified by risk. The degree of risk in such a contract does not lead to disputes between the parties involved due to their wide spread practice and prevalence in the various areas of the economic activities of the people; what people hold good and agree upon without it leading to dispute is lawful.
It is established in Islamic law that in a contribution contract, major gharar is overruled unlike sales contracts which recognize only minor risk.
This was discussed in books such as:
• Al-Faruq by al-Karafi. Dar ihya` al-kutub al-arabiyya, year of publication 1344 A.H., Vol. 1, page 151
• Hashiyyat Ibn Abdin, Vol. 5 pp.416-429.
• Al-Qawa'id al-Fiqhiyya by Ibn Ragab (no.105).
• Al-Mawsu'a al-Fiqhiyya, Vol. 31, p. 160.
Risk is plausible when the insurance contract is drawn up between an individual and a company; but at a time when insurance has permeated all economic activities, and companies are the ones to handle the insurance coverage of their employees, each person knows in advance how much he will pay and how much he will receive, eliminating the risk of unlawful excessive gharar. Moreover, there is nothing in a commercial insurance contract to suggest elements of gambling which is based on chance whereas insurance is based on set principles and well researched calculations on the one hand and on a contract on the other.
After studying the various kinds of insurance policies issued by al-Sharq Insurance Company and others, it is clear that most of its articles are merely regulative principles determined by Insurance companies which become binding upon the client's consent. Though most of these principles are compatible with Islamic law, some of them should be annulled or modified to conform to the principles of Islamic law and the decisions issued by the heads of insurance companies under the leadership of the Grand Mufti of Egypt on 25 March 1997 at Dar al-Ifta. These include the following articles:
1. "Returning the full amount of premiums if the insured is still alive after the end of the insurance contract." This must be changed to: "Returning the full amount of premiums if the insured is still alive at the end of the insurance contract including all the proceeds generated from their investment and after deducting a specified fee covering the company's services.
2. Article no. 10 includes: "If after receiving notification via registered mail, a client defaults on his payments during the specified period and the premiums of the first three years have not been paid in full, the contract is nullified without further notification and the premiums which have been previously paid become the rightful property of the company." This must be changed to: "The paid premiums are to be returned to the client after deducting an amount not exceeding 10% in return for the company's services." This modification protects against companies appropriating their clients' money.
3. Article no. 13, Section no. 1 includes the following: "Claims to any rights consequent to the insurance policy are revoked if the beneficiaries fail to claim them or fail to present the company with the death certificate and other proper documents to this effect." This section must be cancelled since, once rights are established, they cannot be revoked under any circumstances even if they remain unclaimed. It must be replaced with: "Unclaimed returns are to be placed in the Muslim Common Fund if left unclaimed for ten years."
Section 2 of the same Article includes: "Beneficiaries lose any prerogative to seek their rights consequent to the contract after three years of the death of the policy owner." This must be changed to: "The right to raise claims is revoked after 33 years"—this being the period to raise civil claims as determined by scholars of Islamic law.
In reference to the question, all forms of insurance have become a social necessity due to life's circumstances. They are indispensible due to the great numbers of people working in factories and companies both in the private and government sectors. Companies seek to protect their capital assets so that they fulfill their functions in regards to preserving the economy which is the sinew of life. Furthermore, they seek to protect their employees by providing them with financial security both at present and in the future.
The goal of insurance is not profit nor unlawful gains but public assistance and cooperation in removing the harm that may befall individuals due to accidents and disasters. Nor is insurance a compulsory tax; rather it is solidarity and helping one another in good deeds and altruism, both being Islamic injunctions.
Insurance is a universal phenomenon and nations use it to advance and develop their countries. Islam did not close this door for its followers since it is a religion that upholds progress, civilization and organization. There are Muslim scholars, both past and present, who maintained the permissibility of insurance, substantiating their opinions with evidences some of which are mentioned above.
Dar al-Ifta al-Misriyyah is of the opinion that there is no legal objection to implementing the various types of insurance. We hope that, whenever possible, insurance extends to cover uninsured individuals and be made mandatory with monthly or yearly premiums of a reasonable amount. All of this is to help people become accustomed to save and give out to others on the basis that they will regain their money along with profits generated from its investment and which is ultimately useful to them and their countries. Advanced countries and societies are those which instill in their children the value of saving and work to benefit their religion, themselves and their future.
Allah Almighty knows best.