Ethica Institute of Islamic Finance™

What does the Shariah say about compulsory forms of insurance in some countries?

As for the sin of compulsory forms of insurance in some countries, namely automobile, medical, property, and the like, the sin devolves to the one making the law. In many countries auto, property and personal insurance, among others, are legal requirements. One avoids these to the extent legally possible, but pays the amount necessary to fulfill the minimum legal requirement; the ones imposing the laws, not the ones forced to comply, ultimately bear the burden of having contravened the Shariah.

If one is legally obligated to purchase insurance, it is permissible to exceed the minimum legal insurance requirement if this means paying a lower insurance premium (e.g. one purchases comprehensive insurance instead of third party insurance because it is less expensive eventhough it provides more coverage), but it would be impermissible to exceed the minimum legal insurance requirement if this means paying a higher insurance premium (e.g. one purchases comprehensive insurance and third party insurance in order to receive fuller coverage); the general principle being that one purchases the minimum legal requirement of insurance at the minimum cost to oneself.

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