Is life insurance haram?
Insurance is a system of protection from some risks and harms; and in Turkey, it is divided into two as “Social Insurances” (state-owned) and “Private Insurances”. Social Insurances have three units called Retirement Fund (for civil servants and officers), Workers’ Insurance, and Shopkeepers and Businessmen Insurance; and it is an official enterprise. It does not have an aim of making profit; it ensures social solidarity in its ideal form and aims to decrease the social risks by distributing the losses to as many people as possible. In Islam, there is no need for such a system but since it has the idea of solidarity and mutual assistance, many contemporary Islamic scholars regard it permissible.
The private insurances like private life insurance, fire insurance and car insurance that are asked in the question are not permissible if they contain haram (forbidden) elements. For instance, if those insurances contain ‘gharar’ (deceiving and loss for one party), gambling, interest, seizing others’ goods without paying any money, rendering what is unnecessary necessary, selling debt in return for debt, pari-mutual betting, etc, the transaction of insurance becomes haram. (See. Dr. Muhammad Biltaji, Uqudut-Ta`min min Wijhati`l-Fiqhil1-Islami, 150)
If those mentioned above and other haram methods are not contained, then, the insurance becomes permissible. We can say that especially, the insurance system that is established with the aim of mutual assistance is permissible.
Today, especially in Turkey, insurance systems are primarily divided into three: compulsory or social security system, private commercial insurance system and private solidarity system (mutual insurance).
The third one is permissible since it is completely an organization of mutual assistance and solidarity; and there are not any people who think differently about it.
The first one is not actually different from the third one, and the aim of those kinds of insurances is to share the risks of life by ensuring the mutual solidarity of the citizens. The only difference of this kind is the fact that it is compulsory.
The kind of insurance that is subject to discussion is the second type, that is, private commercial insurances. This kind of insurance, which is not actually very different from the others in terms of operation, has two negative aspects. The first one is: they are generally subsidiary companies of banks because of the necessity of depositing the money in a bank and they get interest from that money. The second one: some life insurance systems carry out an interest based system. Apart from those differences, the only difference is that one is organized by the state and the other is organized by a commercial company. It does not change the judgment. The first one of the two negative aspects is out of the contract and it does not invalidate the contract. It can be resembled to the grocer that I buy things from; for instance he commits haram with the money he earns. Such kind of buying is not haram but it is not free of objection since it can be regarded as indirect support to evil. Allah says: “Help ye one another in righteousness and piety, but help ye not one another in sin and rancor.” Then, if there are alternatives of those kinds of insurances that do not contain the negative aspects, one should do business with them not with the others. However, if there are no other alternatives, then one can do business with them.
The second negative aspect is the direct interest transaction and that contract itself is haram. The insured person deposits his money for a certain period and at the end of that period, he gets his money together with the interest. It is definitely interest. In our opinion, if those two negative aspects are eliminated, it can be said that private insurances are also permissible. (See Faruk Beşer, Sosyal Riskler Sigorta ve İslam)