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Insurance

Are conventional insurance contracts permissible in Shariah?

Abu Hurayra (Allah be well pleased with him) said, "The Messenger of Allah ( Allah bless him and give him peace) prohibited sales of 'whatever a pebble thrown by the seller hits' and sales in which there is gharar (contractual uncertainty leading to dispute)". (Muslim) Insurance is a contract between two parties in which an insured party pays an insurance premium in order to secure a compensatory payment by the insurer in the event of loss or damage to an insured entity.

The contractual uncertainty inherent to insurance renders all forms of insurance buying, selling, dealing and investing unlawful. An investment is a cooperative effort combining labor and capital inputs to create goods, services and profits, while undertaking shared risk. Insurance is not an investment because there is nothing in which to invest. Insurance trades in risk; but risk is just a measure, not a saleable commodity.

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