In the Name of Allah, Most Gracious, Most Merciful.
All praise and thanks are due to Allah, and peace and blessings
be upon His Messenger.
Life insurance is a new contract not known in the history of Fiqh. Muslim scholars have different opinions regarding this kind of insurance.
Responding to the question, Dr. Monzer Kahf, Scholar in Islamic Economics & Financial Expert, states the following:
In the circles of contemporary Shari'ah scholars, there are three opinions about life insurance. They all recognize that it is a new contract not known in the history of Fiqh. A minority consider it haram and with all kinds of argument against it including Riba, gambling, gharar and speculation on the will of Allah. This view does not carry much weight.
The second view is that it contains gharar because no one knows whether the liability of the insurer (the company) will ever materialize nor when it will, if ever. This is a serious gharar that leads to a major defect in the contract. It is therefore forbidden.
The third opinion is presented by the late Sheikh Mustafa al Zarka. He argued that the gharar in the contract is remedied by the fact that it is a contract based on overwhelming statistical knowledge and the application of the theory of probability. With this in mind, there is no gharar on the part of the insurer and the contract is permissible with two conditions: that it contains no Riba clause and that its subject (insured thing) be legitimate. These two conditions rule out regular fixed return life insurance because the value of the policy is the outcome of investment premiums at a compounded rate of interest, (while variable - return life is permissible if the funds are invested in the Shari'ah approved stocks or mutual funds). They also rule out insuring a prohibited activity such as casinos.
The advocators of the second opinion argue that the gharar problem applies only in exchange contracts. If the contract is modified and restructure on the basis of cooperation or mutuality, where there will be an association of the insured instead of a profit motivated insurer company, the gharar is then tolerated. This is so because the relation between the association and its members become based on contribution or tabarru' rather than exchange and a tabarru' can accommodate certain conditions ( i.e., that the association compensate in case a hazardous event happens). On the basis of this all the "Islamic insurance companies" were established.
In this regards, al-Zarka adds, that if a mutual or cooperative insurance exists he prefers it to profit motivated insurance out of his respect to the opinion of opponents. There is an old argument (from the 1950s), even by those who oppose insurance, that whenever insurance is forced by law, one must do it and one is excused, from the Shari'ah point of view. This include car insurance, social security, workman compensation, and employer's imposed insurance if it is not optional for the employee to this we add another element that if the insurance provided by the employer is paid completely from the employer, i.e., given as a fringe benefit without deducting any part of the premium from the pay checks, then it is a kind of grant from the employer and if a hazard happens the paid policy amount is halal because it is an outcome of the grant.
Now think for yourself: if your life insurance is only term life, you may apply the opinion of Sheikh al-Zarka, and if it is imposed by employer, you also have room to accommodate, and if it is a grant from employer it is also tolerated. Otherwise you need to see the specifics of the contract you have and determine, in the light of the above briefing, whether you keep or seek to withdraw from it.
Dr. Monzer Kahf is a prominent economist and counselor.
Educational background
- Ph.D, Economics. University of Utah, Salt Lake City, Utah, March 1975.
- High Diploma in Social and Economic Planning: UN Institute of Planning, Damascus, Syria, 1967.
- B.A., Business. University of Damascus, Damascus, Syria, June 1962. Graduated with high honors awarded by the President of Syria.
- Strong training and knowledge in Islamic Jurisprudence (Fiqh) and Islamic Studies.
- Certified Public Accountant in Syria, since 1968
Employment Experience
Research Economist: Islamic Research and Training Institute (IRTI) of the Islamic Development Bank (IDB). Jeddah, Saudi Arabia, June 1985 – August 1999.
- Responsibilities included organizing and conducting training courses in Islamic Banking and Islamic Economics, evaluating papers, writing original research as well as other papers and reports, and generating ideas for research projects.
Head of Research Division: IRTI of IDB, Jeddah, Saudi Arabia. July 1989 - Feb 1991.
- Responsibilities included supervising seventeen Ph.D. and M.A. research officers, preparing research plans, evaluating research works, organizing seminars on Islamic economics, banking and finance, coordinating with other departments, and networking with other research organizations having similar objectives.
Private Businessman: New York, NY, Sept 1981 - June 1985. Financial consultant.
Director of Finance: Islamic Society of North America, Plainfield, Indiana, Aug 1975 - Sept 1981.
- Responsibilities included planning and executing the budget for a national, non-profit organization, fundraising, evaluating requests for financial assistance from charitable funds based on Islamic religious law, writing guidelines to assist Muslim individuals and mosques of North America in coordinating religious and civil law on inheritance, almsgiving, and trust endowment.
Teaching Assistant: Department of Economics, University of Utah, Salt Lake City, Sept. 1971 - June 1975.
Auditor: Government State Audit Office, Damascus, Syria. May 1963 - March 1971.
Instructor: School of Business, University of Damascus in Damascus, Syria. 1962 - 1963.
Publications
Books and booklets. More than 25, in English and Arabic, on Islamic banking and finance, Islamic economics, Zakah, Awqaf, including some which have become the standard reference manuals in the field.
Articles and encyclopedia entries. More than 70, in English and Arabic, on Islamic economics, Islamic public and private finance, Islamic banking, Zakah, Awqaf, including entries for the Oxford Encyclopedia of the Modern Islamic World.
Publications in English
BOOKS
The Calculation of Zakah for Muslims in North America. Plainfield, Indiana: Islamic Society of North America (ISNA), third revised edition, 1998.
1. Planning Charitable Giving, Plainfield, Indiana: ISNA, 1998.
2. Last Will and Testament for Muslims in North America, Plainfield, Indiana: ISNA, second revised edition,1998. Considered the standard reference manual in the field.
3. Editor, Lessons in Islamic Economics: Proceedings of the Seminar on Orientation in Islamic Economics in Dhaka August 1991. Jeddah, Saudi Arabia: IRTI, 1998 (two volumes).
4. Editor, Economics of Zakah. Jeddah, Saudi Arabia: IRTI, 1997.
5. Instruments of Meeting Budget Deficit in Islamic Economics. Jeddah, Saudi Arabia: IRTI,1997.
6. Co-editor, International Economic Relations From Islamic Perspective, with M. A. Mannan and Ausaf Ahmad. Jeddah, Saudi Arabia: IRTI/IDB (seminar proceedings), 1993.
7. Zakah Management in Some Muslim Societies. Jeddah, Saudi Arabia: IRTI/IDB, 1993.
8. Principles of Islamic Financing: A Survey. Jeddah, Saudi Arabia: IRTI, 1992, with Taquillah Khan
9. Translator, Fiqh al Zakah by Shaikh Yusuf al-Qardawi. King Abdul Aziz University, Jeddah, Saudi Arabia: Center for Research in Islamic Economics.
10. The Islamic Economy: Analytical Study of the Functioning of the Islamic Economic System. Plainfield, Indiana: The Muslim Students' Association of the United States and Canada, 1978. (Translated into Turkish, Indonesian and Korean).