Home > Shariah Queries
Insurance, as a tool for risk mitigation, is not prohibited in terms of the benefit that it provides. Islam does not prohibit individuals from taking measures to cover their financial risk, in fact it encourages it. This is shown in the hadith of the Prophet (SAW) in which he told a companion to tie his camel and then put his trust in Allah. The impermissibility of conventional insurance is based on the way that it is executed.
No human actions change the Will of Allah for our destiny. Whether a person has insurance/Takaful or not has no effect on future events. However, we are instructed to take precautions and then fully trust and depend upon Almighty Allah:
In a Hadith narrated by Anas bin Malik when an Arab Bedouin asked Prophet Muhammed (PBUH),Shall I leave my camel untied and seek Allah’s protection on it, or should I tie it? The Holy Prophet replied, Tie your camel and then depend upon Allah.” [as quoted by Sunan At Tarmizi]
Risk or uncertainty can be divided into: Pure Risk and Speculative Risk. Pure Risk involves the possibility of Loss or No Loss. For example, damage to property due to fire. Pure Risks are the subject of insurance risk protection and Takaful. On the other hand, Speculative Risk involves the possibility of Loss, No Loss or Gain. For example, venturing into a new business, or gambling on horse race. Speculative Risks that include a potential Gain or Profit cannot be insured.
Takaful schemes use the principle of indemnification to compensate for the loss that occurs to a Takaful Participant. Takaful insures only Pure Risks and the claims only pay in the event of Loss to cover repairs, damage, replacement of property, or an agreed fixed sum.
