Dispute among the scholars on the validity of life insurance & possible refutation to the misconception

Prof. Dr. Mohd. Ma'sum Billah

Under Islamic law on the other hand, the 'Ulamā' are divided in groups over the issue of the validity of insurance. There are mainly three groups. One of them accepts the practices of insurance subject to conformity with the Sharī'ah. The second group accepts general insurance but rejects the life insurance and the third group opposes insurance entirely, claiming that the whole idea of insurance policy is contrary to the fundamental teachings of Islam.2 This research aims at focusing on the disputes which have arisen among the Islamic scholars on the validity of insurance, the grounds of their arguments and possible justifications for the legality of insurance practices in the light of the Sharī'ah principles.
Views of the Islamic Scholars on Insurance

Differences in Groups
The 'Ulamā' have mixed views on the validity of insurance. Generally, these views of the Muslims scholars can be divided into the following three groups:
Insurance practice is entirely and absolutely lawful provided that it is free from the element of riba. Among the 'Ulamā' sharing this viewpoint are Shaikh Mohammad 'Abduh, 3 the Hanafi lawyer Shaikh Ibn Abidin,4 Mohammad Taqi Amini, Shaikh Mahmud Ahmad, Mustafa Ahmad Zarqa, Sayed Mohammad Sadeeq al-Ruhani, Ibrahim Tahawi, Ahmad Taha As-Sanusi, Yusuf Musa, Mohammad al-Bahi, Ali al-Khafif, Zafar Shahidi, Mohammad Nejatullah Siddiqi, Mohammad Muslehuddin, M.A. Manna, Ali Jamaluddin Awad, 5 as well as Ayatullah Khomeni.6
There are some Islamic scholars who accept general insurance but object to life insurance as it involves the elements of Maisir (gambling) and Garar (uncertainty) and it contrasts with the principles of Mirath and Wasiyah. This view was accepted in a Seminar held in Morocco on 6th May 1972. 7 Among the scholars who accepted this view are Abdur Rahman 'Isa, Ahmad Ibrahim, Mohd. Musa, Mufti Mohammad Bakheet, Mohammad Abu Zahra,8 and Shaikh al - Azhar Shaikh Jad al - Haq Ali Jad al-Haq,9 also an anonymous statement published in the Muslim brotherhood in 1941, 10 and the Muslim League Conference held in Cairo in 1965, 11 supported this view.
The third group clearly and totally rejects any practice of insurance on the grounds that it involves the elements of riba, Maisir and Garar which are strictly prohibited by the Sharī'ah. Among the Islamic scholars who are in favour of this view are Mustafa Zaid, 'Abdullah al-Qalqeeli and Jalal Mustafa al-Sayyad. 12
However, in my effort to justify the validity of insurance, reference has to be made to the misconceptions that have surrounded the very idea of insurance and its operation which might have compelled some Muslim scholars to urge the rejection of insurance. An attempt is made to refute these misconceptions, to enable the contemporary Muslim Ummah to accept insurance as a Sharī'ah justified financing technique.
Misconceptions

Among the misconceptions are:
An insurance policy contains the element of riba'. 13 Any transaction which involves riba' is void ab initio. Allah (S.W.T.) has clearly forbidden riba' based transaction in the following Ayat:
"... Allah (S.W.T.) has permitted trade and prohibited Riba'...."14
It contains an element of betting. This is because, the insured, in an insurance policy, hopes to get the opportunity for a material gain, and, hence, this is similar to betting. This view was developed unanimously by some Ulama in a judicial conference held in Macca in Sha'ban, 1398AH. 15

(iii) It contains the element of Garar. 'al-Garar' means uncertainty in either the object or the subject matter of a transaction. Any transaction involving the element of 'Garar' is void ab initio in the eyes of the Sharī'ah. The Holy Prophet (S.A.W.) prohibited any transaction involving the element of Garar in the following tradition:
"... The Holy Prophet (S.A.W.) had prohibited transaction with Garar, (uncertainty)" 16
(iv) It contains the element of 'Maisir' (gambling) which has been strictly prohibited by Allah (S.W.T.) in the Holy Qur'ān. 17 A transaction involving gambling occurs when a gambler pays a certain amount of money from which the gambler hopes for a material gain. Hence, it is argued that an insurance policy has the element of Maisir as the insured pays the premiums with the hope of obtaining a chance of a handsome return. Therefore it is alleged that such a transaction involving the unlawful element of Maisir, is not permissible, as Allah (S.W.T.) prohibits Maisir in the following sanction:
"...They ask you concerning wine and gambling. Say: In them is great sin ..." 18
(v) There is also no express authority from the Divine principles justifying the validity of the practice of insurance policy. Hence, it is argued that any transaction or dealing which is inconsistent with the Holy Qur'ān and the Sunnah or Tradition of the Holy Prophet (S.A.W.) should be held void. Allah (S.W.T.) has indicated:
"... If anyone desires a system other than Islam never will it be accepted from him ..." 19
It is contrary to the principle of Tawakkul. In an insurance policy, the insured puts a trust on the insurer to protect him against an unexpected loss instead of putting his trust on Almighty Allah (S.W.T.). Such practice is against the principle of 'Tawakkul' as every believer is obliged to put his own trust (Tawakkul) in Allah (S.W.T.) only. Allah (S.W.T.) says:

".... but on Allah (S.W.T.) put your trust (Tawakkul) if you have faith....." 20
(vii) It is contrary to the principles of 'Mirath' and 'Wasiyah'. This is because, in a life insurance policy, the nominee is the absolute beneficiary from the policy after the death of the insured, and this will deprive the heirs of the deceased of their legal rights based on the principles of 'Mirath' and 'Wasiyah'. 21
(viii) Some Muslims and even some Islamic Scholars claim that life insurance means to ensure one's life against death and such practice is unlawful. Among those who support this opinion are Shaikh al-Azhar Shaikh Jad al-Haq Ali Jad al-Haq, 22 an anonymous claim in the Muslim Brotherhood published in 1941,23 the unanimous decision of the Muslim scholars at a Seminar held in Morocco on 6 th May 972, 24 and also the verdict of the Islamic Supreme Court of Egypt on December, 27 th, 1926.25 The above view is based on the ground that there is no creature who can ensure one's life or death except Almighty Allah (S.W.T.) who is the only powerful Cherisher and Sustainer of the whole universe. Allah (S.W.T.) states:
"....Verily the knowledge of the hour is with Allah (S.W.T.). It is He who sends down rain, and He who knows what is in the wombs-Nor does anyone know what it is that he will earn tomorrow, nor does anyone know in what land he is to die. Verily with Allah (S.W.T.) is full knowledge and He is acquainted (with all things)....." 26
(ix) An insurance policy stands towards ensuring one's wealth and property. In the light of the Sharī'ah, a transaction which guarantees protection of one's property is said to be invalid except in three situations: fear for unjust enrichment; fear of losing one's property; and fear of one's property being destroyed or perished. This is the view upheld by Shaikh Azhar Jad al-Haq in denying the validity of insurance policy. 27
(x) A life insurance contract involves unlawful elements. A contract, which is based on unlawful elements, is not binding as the Holy Prophet (S.A.W.) said in one Tradition:
"...... Muslims are bound by their conditions except the condition which prohibits lawful one or the one which permits the unlawful one..." 28
(xi) Finally, Shaikh al-Azhar Jad al-Haq Ali Jad al-Haq recently in a 'fatwa' session advised the Muslim Ummah against insurance especially life insurance as it involves unlawful elements and, Muslims should not be making money or profits through unlawful means. 29
Refuting the Misconceptions
(i) An Islamic model of insurance does not involve the element of riba. It is practiced based on the principle of al-Mudarabah financing30 in which both the insurer and the insured share the profit, bonus and dividends obtained from the paid premiums in agreed proportions. Such a transaction is based on mutual agreement between the parties and therefore, the Sharī'ah Supervisory Board of Sudan held that such a transaction does not contravene the Sharī'ah nor does it contain any unlawful element.31 Moreover, such a practice is further justified by the Divine principle of mutual transaction as Allah (S.W.T.) says:
"…O you who believe! do not misappropriate your property among yourselves in vanities, but let there be among you traffic and trade by mutual good will... " 32
An insurance policy does not supersede the will of Allah (S.W.T.). In such a policy, (particularly in a life insurance policy) the aim is neither to ensure nor determine one's life or death nor does it intend to determine the future material luck of one's dependents. A life insurance policy also does not connote the idea that the participant is trying to protect his life from death against the will of Allah (S.W.T.). An insurance policy also does not mean that the insured is determining his future financial capacity. A policy, be it general or life, simply means that both the operator and the participant in a contract of insurance mutually agree to work for a compensation or security against an unexpected tragedy. Such concept is of course in line with the Islamic principle whereby Islam encourages the 'ummah' to strive hard in overcoming difficulties in their lives. The Prophet (S.A.W.) said:

".... Narrated by Abu Huraira ® the Holy Prophet (S.A.W.) said: Whosoever removes a worldly grief from a 'mu'min', Allah (S.W.T.) will take away from him one of the grieves of the hereafter. Whosoever alleviates a needy person, Allah (S.W.T.) will alleviate from him in both the world and the hereafter...." 33
(iii) In an insurance policy, the insured is not putting his trust (Tawakkul) in the insurer for a future protection but it is only a mutual transaction whereby both parties agree to work for the welfare or protection of the insured against an unexpected occurrence of loss or damage. This is of course in line with the Divine principle of mutual co-operation as Allah (S.W.T.) commanded to the effect:
"... co-operate you one another in righteousness and piety...." 34
(iv) An insurance policy does not involve the element of gambling or betting. Mustafa Al Zarqa maintains that the gambler, in a transaction of gambling or betting, is always hoping for a chance to gain materially and with the spirit of defeating other gamblers rather than co-operating.35 In contrast, the parties in a contract of insurance, are bound together in a spirit of mutual co-operation and good will in providing material security for the orphans,36 widows, 37 other dependents38 as well as one's own self against an unexpected future loss, damage or peril.
(v) An insurance contract also does not involve the elements of Garar (uncertainty). In an insurance policy generally, the subject matter is the life or property on which the risk is presumed to be occurring in the future. The subject matter of the insurance contract is definite and certain. Similarly, the subject matter of a life insurance policy is the life of the assured who has been blessed by Allah (S.W.T.) with a life and who will also one day die by the will of Allah (S.W.T.). Such occurrence of life and death is of course definite and certain as Allah (S.W.T.) says:
"....... Every should shall have a taste of death....." 39
Therefore, the allegation that the insurance policy involves the elements of 'Garar' (uncertainty), thus, making it invalid, is groundless.
(vi) Some believe that an insurance policy cannot be justified by express Divine sanction, hence, making it unlawful. In responding to this misconception, there are a couple of provisions in the Holy Qur'an and also in the Sunnah of the Holy Prophet (S.A.W.), which provide the principles of mutual co-operation 40 and the doctrine of al-Mudarabah financing respectively. 41 These both Divine doctrines in fact evolve around the today's Sharī'ah based insurance practices. Moreover, the idea of insurance policy and practice originated from the traditional doctrine of al-Aqilah, which was approved by the Holy Prophet (S.A.W.) in one of his verdicts in a case of dispute between two women from the Huzail tribe. 42 The Holy Prophet (S.A.W.) gave the above judgment in the following Tradition:

"Narrated by Abu Huraira ® that two women Hudhail tribe fought with each other and one of them flung a stone at the opponent, killing her and what was in her womb. The case was brought to the Prophet (S.A.W.) in which he gave verdict that the diyat (Blood-wit) of her unborn child is a male or female slave of the best quality and he also decided that the vicarious liability of the diyat on behalf of the slain is to be rendered to her paternal relatives while the Prophet (S.A.W.) made her son and those who were with them her heirs......" 43
The same doctrine of al-'Aqila was subsequently approved and commanded by the second caliph Sayyidina Umar, ® mandatorily in some cases. 44 Thus, it is baseless to allege that insurance has no basis for justification.
(vii) Some argue that the practice of insurance is contrary to that of the Islamic principle of 'Tawakkul' (putting trust in Allah (S.W.T.). While it is admitted here that both the insurer and the insured, in a policy, mutually agree to take an initiative for the protection of the insured against an unexpected risk, loss or damage on the subject matter, they still ultimately put their trust in Almighty Allah (S.W.T.) who is the sole Cherisher and Sustainer of the whole universe. In fact, the initiative which is taken by both parties does not deviate from the principle of 'Tawakkul' as such an initiative is only an effort made to the best of their ability to overcome future unexpected difficulties and nothing more. Indeed, in accordance with the Islamic concept of 'Tawakkul', man is asked to strive to the best of one's ability in performing a particular act or job before putting one's trust in Allah (S.W.T.). The Holy Prophet (S.A.W.) explained the principle of 'Tawakkul' in the following Hadith:
"The Holy Prophet (S.A.W.) told a Bedouin Arab who left his camel untied, trusting to the will of Allah (S.W.T.), "tie the camel first then leave it to the will of Allah (S.W.T.)...." 45
Therefore, it is concluded here that, the practice of insurance does not contravene the Islamic principle of 'Tawakkul'.
(viii) Life insurance policy does not contravene the principles of 'Mirath' and `Wasiyah'. In Amtul Habib v Musarrat Parveen, 46 the Supreme Court of Pakistan held that, in a life insurance policy, the nominee (s) is nothing more than a trustee who is under an obligation to receive the benefits of the policy on behalf of the heirs of the assured (deceased) and distribute the benefits among the heirs of the deceased in accordance with the Islamic principles of 'Mirath' and 'Wasiyah'. Hence, the nominee here is not an absolute beneficiary(s), but a mere trustee or executor, 50a and the nominee may receive only a portion of the benefits if he or she, is one of the legal heirs of the deceased.
Further Justifications for the Validity of Sharī'ah Model of Insurance
Besides the grounds, which have already been mentioned above in justifying the ideas and practices of an insurance policy, there are some additional grounds, which could well justify its practice. These grounds are listed as follows.
An insurance transaction is similar to the principles of al-Wadiah (deposit) whereby two parties engage themselves in an agreement in which one of them deposit money with the other as a trust or 'Amanah' for the purpose of safekeeping.47 Such method of dealing also exists in a contract of insurance as the insured deposits money with the insurer for future safety. The principle of al-Wadiah has been developed from the following Ayat of the Holy Qur'ān when Allah (S.W.T.) says:

"... Verily Allah (S.W.T.) commands you to render back your trusts to those to whom they are due ...." 48
(ii) A transaction which originated from the ancient custom or 'urf is permissible as long as such custom does not contravene any of the Divine principles and doctrine enshrined in the Holy Qur'an and the Sunnah of the Holy Prophet (S.A.W.). Islam, in this matter, has always been flexible in accepting any custom or 'urf of the people which may be convenient for the society, but of course with the condition that such custom is in line with the Sharī'ah. The justification of 'urf is indicated in the following hadith:
".... Whatever Muslims see good it is good with Allah (S.W.T.)." 49
An insurance contract may be said to have originated from the ancient Arab custom ('urf) the doctrine of 'al-'Aqila' which was approved by the Prophet (S.A.W.) 50. Hence, following the custom and, at the same time the practice of insurance is justified and given legal entity. 51
(iii) The origin of every transaction is permissible unless an authority proves it invalid. This principle has been laid down by Suyuti in the following maxim:

"The origin in everything is lawful unless an authority proves one unlawful." 52
The fundamental aspect of an insurance contract is derived from the ancient Arab custom of al-'Aqila. Its main objective is mutual co-operation justified by al-Qur'ān, (as Surah al-Maidah 5:2). Its operation is based on 'al-Mudarabah' financing for the purpose of public interest relying on the doctrine of 'Masalih al-Mursalah' and it has, therefore, been approved and justified by the Sharī'ah. Hence, it may also be logical and natural to hold such insurance contracts valid.

(v) Any transaction in which the parties undertake to fulfill their lawful obligations is valid and binding on both parties. This is because, the Sharī'ah has emphasized the performance of undertakings and promises. The Prophet (S.A.W.) once said in one of his Traditions:

"Muslim are bound by their conditions except the one which prohibits the permitted one or permits the prohibited one...." 53
This is further justified in the Holy Qur'ān when Allah (S.W.T.) says to the effect:
"O you who believe! fulfil your promises" 54
(vi) The terms and conditions to be required in a contract of insurance between the two parties are lawful, and hence binding on them. The school of Maliki hold that the insurance contract is a binding promise, and hence permissible in the eyes of the Sharī'ah. 55
(vii) The practice of insurance is also based on, inter-alia, the doctrine of public interest ('Masalih al-Mursalah') for the purpose of eliminating hardship from one's life, while, taking an initiative to look after the welfare of the poor who may have suffered resulting from an occurrence of loss or damage. It is thus, justified in the Holy Qur'ān, in that, Allah (S.W.T.) has always wished a good and convenient life for His creatures without having to face any difficulty. Allah (S.W.T.) says:
"......Allah (S.W.T.) intends every facility for you and He does not want to put you to difficulties...." 56
(viii) An insurance policy does not signify an opportunity for the insured to hope for a chance for a material gain. In fact, it is a transaction whereby the insured takes an initiative to the best of his ability to be compensated or indemnified in the event of unexpected loss, damage or peril. Such compensation or indemnity has been mutually agreed to by both the insurer and the insured, and this further signifies the element of mutual co-operation between both parties to the contract of insurance. Such principle has been justified in the Sharī'ah. Allah (S.W.T.) says:
"..... and co-operate you one another in righteousness and piety...." 57
(ix) An insurance contract also operates based on the principle of necessity. Any transaction operating along the line of necessity is permissible, as justified in the following maxim:
"Necessity makes forbidden things canonical harmless....." 58
Hence, the life insurance policy which operates based on the principle of necessity in providing material protection for the unfortunate widows, offspring and so on in the event of the death of the assured, is justifiable. The Prophet (S.A.W.) advised in one of his Traditions:
"Narrated by Saad bin Abi Waqas ®: The Holy Prophet (S.A.W.) said: It is better for you to leave your offspring wealthy than to leave them poor asking others for help......" 59
In another Tradition, the Holy Prophet (S.A.W.) said:
"Narrated by Safwan bin Salim ®, the Holy Prophet (S.A.W.) said: The one who looks after and works for a widow and for a poor person is like a warrior fighting for the cause of Allah (S.W.T.) or like a person who fasts during the day and prays over night........ " 60
An insurance policy involves an element of contribution (al-Musahamah)61. For instance, the insured in a general policy pays regular premiums for the purpose of seeking compensation in case of unexpected loss or damage occurring to the particular subject matter of the policy. In a life insurance policy, the assured pays premiums as a contribution for the welfare of his dependents and at the same time the insurer pays an amount of donation from the charitable fund for the beneficiary(s) of the assured as an addition to the paid-premiums and share of profits. 62 The Holy Prophet (S.A.W.) also used to accept donations 63. Thus, a transaction like an insurance contract, which involves the elements of contribution and also donation, could be held lawful.

(xi) The nature of a life insurance policy is similar to that of a retirement pension scheme. al-Zarqa and al-Alwan stated that all contemporary Islamic scholars unanimously agreed on the lawfulness and validity of a retirement pension scheme.64 Adil Salahi accepted the fact that all scholars of Islamic Jurisprudence approved the idea of a pension scheme for the reason of ensuring security for the subscriber himself as well as his family in cases of difficulties or death.65 Salahi went on to defend the validity of life insurance based on the approval of all scholars on pension schemes, asked why family security should be rendered lawful in a pension scheme, and unlawful in a life insurance policy when their method of operations are practically the same? 66 It was also inferred that the reason all 'Ulamā' accepted the idea of retirement pension is that it was widely accepted during the time of Sayyidina Umar ®. Hence, it is submitted that a life insurance policy, being similar to a pension scheme, should also be held lawful and valid.
(xii) It is also an Islamic teaching that, one should make and spend wealth in a lawful way, and simultaneously one should also have an economic plan to save a portion out of his earnings for future security against unexpected risk. The Holy Prophet (S.A.W.) provided a guideline for an economic plan:
"Allah (S.W.T.) blesses those who acquire wealth in good manner, then the wealth is spent accordingly and the remaining is saved for future use when risk occurs." 67
An insurance policy does not depart from the guideline provided by the Holy Prophet (S.A.W.) in the above hadith, because the nature of an insurance policy is that, the policyholder pays regular premiums (especially in a life policy) to the insurer as a saving for safe keeping for future security against unexpected risk.
Indeed based on the above-mentioned arguments, it is submitted and asserted that, an insurance policy which is based on the Islamic principle of 'al-Mudarabah' should be held valid and enforceable. It is also submitted that, the arguments put forward by Islamic scholars opposing the idea and validity of insurance are entirely refutable.
Final Submission
In the history of Common law, there has been no difference of views among the scholars regarding the legitimacy of the central idea of insurance practices. However, in Islamic law, there is a difference of views among the Muslim scholars as regards to the validity of insurance. No one could deny the importance and necessity of having an insurance policy. Hence, without looking at the scenario of the conventional insurance, the Islamic scholars (who oppose partly or entirely the idea of insurance) must come forward and suggest ideal solutions as alternatives to those of the conventional insurance practices. But if they continue to differ in their views in regard to the validity of insurance policy, this could pose a threat to the economic prospects and economic independence of the contemporary Muslim Ummah and the Ummah to come.
It is therefore suggested that the scholars should not remain in conflict with one another, but should contribute towards finding a better and justified solution to eliminate any unlawful elements from an insurance policy. In doing so, they could design a model of an insurance transaction which may enable the Muslim Ummah to benefit from a fair and legal transaction which is in line with the Sharī'ah principles. This means that an insurance policy can only be practised on the basis of the principles of profit and loss sharing technique (al-Mudarabah). This is because, such a transaction is based on mutual co-operation and good will, and the parties involved in a contract of insurance may look after each other's welfare through sharing and co-operation.
Thus, it is humbly hoped that the Islamic scholars resolve their differences in regard to the validity of the idea and application of insurance, through inventing an alternative model of insurance as opposed to the conventional model for the benefit and betterment of the contemporary society in general and the Muslim Ummah in particular.