Sharī’ah model of Life
Insurance (Family Takaful) does not mean to insure one’s life, but it is a
financial transaction undertaking to protect widows, orphans and other
dependents of the deceased (assured) against future unexpected financial
risk. The conventional system, however,
offers a life insurance policy, which may not be free from ribā
(interest), or some other elements, which are not recognized by Islamic
teaching.
Based on the observation of
the practices of life insurance policies under the conventional system many
Muslims, and even some Islamic scholars, diametrically oppose the idea of life
policies, but have not come up with an Islamic alternative model to the
conventional one which would meet the expectations of contemporary Muslims and
would protect widows, orphans and other dependents in society from unpredicted
future financial risk.
Hence, the
central idea of the model of an Islamic life insurance is that, it is not a
policy to insure one’s own life, but is a
financial transaction relying on the principles of mutual cooperation to
undertake a responsibility towards safeguarding widows, orphans and other
dependents of the deceased (assured), from future financial risk, which does
not involve the elements of ‘Ribā’
but
is operated along the lines of the following principles of the ‘al-Mudhārabah’ financial technique, while neither
clashing with the principles of ‘Mīrath’ nor with the
principles of ‘Wasiyah’.
In an Islamic model of life
insurance policy the nominee(s) is not an absolute beneficiary(s) but a mere
trustee[1]
who is under a duty to obtain benefits over the policy and distribute them
among the heirs of the deceased (assured), according to the principles of ‘Mīrath’ and ‘Wasiyyah’.[2]
Central Idea of
Life Insurance under the Islamic discipline is quite different from the one,
which is practiced under the conventional system. A Islamic model of a life insurance policy,
however, is a financial transaction based on the principle of the ‘al-Mudhārabah’ financing
technique relying on the principle of mutual cooperation, undertaking a
responsibility towards safeguarding widows, orphans and other dependents of the
deceased (assured/policy holder) from an unexpected future material risk. The nominee(s) in the life insurance policy
who is appointed by the assured, is not an absolute beneficiary(s) over the
policy but a mere trustee who receives the benefits and distribute them among
the heirs of the deceased (assured) according to the principles of ‘Mīrath’
(inheritance)
and ‘Wasiyyah’ (bequest).
Where
the assured is still alive upon the maturity of the policy period, he has the
right to claim from the insurer the paid-premiums, the share of profits made
over the paid premiums, plus bonus and dividends according to the company
policy. But if the assured dies at any
time before the maturity of the policy, the claim of the nominee(s) includes
the paid-premiums, the share of profits made over the paid-premiums, bonus and
dividends according to the company’s policy plus a donation from the company’s charitable fund
according to the financial condition of the beneficiary(s) of the assured.
As for the claim for benefits over a life
insurance policy, the death of the assured does not necessarily have to be
natural or accidental but any cause of the death (even an unlawful death like
suicide or being killed in the act of a crime etc.), counts so long as the
death of the assured is proved. This is
because the death of the is determined by Allāh (SWT) as is stated in
the holy Qur’an:
Moreover, as
regards the act of suicide or any other crimes, the doer himself/herself is
solely accountable to Allah (SWT) for his/her own act. As Allah (SWT) ruled in the holy Qur’an:
“… it is better for you to leave you
off-spring wealthy than to leave them poor, asking others for help…” [Narrated by Saad b. Abi Waqqas
(r.a)][5]
2) Having a life
insurance policy is a future material security for widows and other dependents
of the deceased (assured). The Holy
Prophet (SAW) in fact encouraged the providing of security for the widows
and poor persons as he highlighted in one of his traditions:
4) Having a life insurance policy provides
certain persons (as widows, orphans and so on) with a protection from unexpected
future material difficulties, which may result a hardship for the life of these
people. The Holy Prophet advised
the ummah to protect one from any form of hardships and difficulties
when he said to the effect:
Whosoever
removes a worldly grief from a believer Allah (SWT) will remove from him one of
the grieves of the day of Judgement.
Whosoever alleviates a needy person Allah (SWT) will alleviate from him
in this world and the next… [Narrated by Abu Huraira ( r.a)].[8]
6) A life insurance
policy ensures mutual cooperation, a brotherly feeling towards others, which
provides a positive status, which can provide a feeling of brotherhood in
society. For example, an assured pays
the premium, which enables the insurer to invest and make a profit while the
insurer ensures a financial protection for the assured’s beneficiary(s).
Such financial cooperation lead to a sense of brotherhood and economic
progress. Moreover, having a life
insurance policy is a positive initiative by the assured towards a positive
material status of the widow, offspring and so on. Such mutual cooperation towards a positive
goal is in fact ruled on by Allah (SWT) where He (SWT) says to
the effect:
“..Allah (SWT) intends easy life for
all of you while He does not want you to be in difficulties..”[11]
MODERN LIFE INSURANCE Vs. FAMILY TAKĀFUL
3) Idea of a conventional designed life
insurance policy is that, if the assured dies at any time before the maturity
of the policy, the nominee(s) is entitled to maturity of the policy the
nominee(s) is entitled to recover from the insurer the whole amount agreed in
the policy, while if the assured is till alive life upon the expiry of the
policy period he is also entitled for the whole amount agreed in the policy
plus the interest, dividends and bonus subject to the company’s
policy. On the contrary, in the paradigm
of an Islamic Model of life insurance policy is that if the assured dies at any
time before the policy matured the beneficiary(s) is entitled from the
insurance company to the whole amount of paid premiums, the bonus and dividends
according to the company’s policy, a share of profits
made over the paid-premiums plus a donation from the company’s
charitable fund according to the financial status of the beneficiary(s) (i.e.
if the beneficiary(s) is financially in good condition the amount will be
small but if the beneficiary(s) is
financially weak or unstable the amount could be bigger).[19] Such transaction is considered as a mutual
cooperation towards the welfare of the helpless people in society, and is thus
in line with the Qur’anic principle.
Allah (SWT) says to the effect:
However, in the
case where the assured’s is still alive upon the
expiry of the maturity period, he is entitled from the company the whole amount
of paid-premiums, a share of profit made over the paid-premiums according to
the principle of ‘al-Mudhārabah’, bonus
and dividends according to the company’s policy.
5) With regard to the insurable interest under
the conventional system, it is usually vested to the policyholder himself[21]
should he be alive upon the expiry of the policy period. But, in the case of the death of the assured
within the period, the insurable interest is to be vested to husband and wife,
parents or children, the benefactor or beneficiary or servant, company and
director, trustee and employee, partners, mortgagor and mortgagee.[22]
In contrast, under
the Islamic model, the insurable interest is to be vested to the assured
himself or to his heirs according to the principles of ‘Mīrath’ and ‘Wasiyyah’.[23]
UNDERLYING PRINCIPLES AFFECTING LIFE INSURANCE UNDER
SHARĪ’AH DISCIPLINE
1) Prior to entering into a life insurance
agreement, the assured must have a sincere intention that the policy will not
lead to gain but should look towards protection of off-springs, wife and the
other dependants from unexpected future financial risk. Simultaneously, he also has to put his trust
in Allah (SWT) for the betterment of those dependents’ future
lives. Such initiatives thus in line
with the advice of the Holy Prophet (SAW):
3) In the case of the assured’s
death at any time during the policy period, the beneficiary(s) of the assured
should not fight for the whole amount but only for the paid-premiums, a share
of profits made over the paid-premiums, bonus and dividends accordingly, plus a
donation from the company’s charitable fund according
to the beneficiary(s) financial condition.
4) In case where the assured is alive life
upon the expiry of the policy period, the assured can only claim from the
company the paid-premiums, a share of profits[25]
made over the paid premiums, plus bonus and dividends according to the company’s
policy.
5) The nominee(s) in a life insurance
policy does not necessarily have to be an absolute beneficiary(s) but a mere
trustee who is under a duty to receive the benefits from the insurer and
distribute them among the heirs of the assured according to the principles of ‘Mīrath’ and
‘Wasiyyah’. Hence, should the
nominee(s) fall into the category of heirs of the assured he/she is also
entitled to a share accordingly.
6) The agents in a life insurance policy
should not be paid out of the paid premiums by the assured but be paid out of
the share of the profit made over the paid premiums by the company itself. This is because the agents are not working
for the assured but for the company.
Therefore, the agents should enjoy a share (a salary) of the profits
according to the company’s policy.
7) As regards the investment of the paid
premiums, Adil Salahi suggested that the company (insurer) is under an
obligation to invest the paid premiums in a lawful business which is free from
the elements of ‘Ribā’,’[26] gambling’ and other forms of unlawful transactions, contrary to
divine principles.
8) The insurable interest in a life policy
should be presented either to the assured himself (should he be alive upon the
expiry of the policy period) or to the heirs of the assured (should the assured
die at any time within the policy period) according to t he principles of ‘Mīrath and ‘Wasiyyah’.[27]
Opposing Views
among the ‘Ulama
Among the
opponents against the validity of life insurance are Mufti Mohd. Bakhit, Mohd.
Abu Zuhra, Mohd. Musa, Ahmad Ibrahim, Al- Hanafi, Ibd Abdeen, Sheikh Shaukat,
Khan Mohd. Yusuf Musa, Shaukat Alyan, Ahmad Fahmi, Ahmad Taha Sanusi, Abdur
Rahman Isa, Ali Khaleef and a few others including Al-Sheikh Jad Al-Haq Ali Jad
Al-Haq who vehemently oppose the idea as well as the operating of life
insurance policy in the light of the divine sanctions. In their judgement life insurance is
absolutely opposed to the Shari’ah discipline and thus shall not be
permissible in Islamic teachings.[29]
1) It is a policy of insuring one’s
life. Sheikh Jad al-Haq issued a ‘Fatwa’ against the validity of life insurance because it is a
transaction, which ensures one’s life, and insuring one’s life by a
creature is not permissible in the Shari’ah.[30]
2) A life insurance contract involves
unlawful elements. A contract, which
involves unlawful elements, can never be binding as the Holy Prophet (SAW) says
to the effect:
“..the Muslims are bound by the
conditions except the condition which prohibits the permitted one or the one
which permits the prohibited one.”[31]
3) It contains the element of ‘Riba’.[32] Many ‘Ulama oppose the validity of
life insurance because it involves the elements of both kinds of ‘ribā’ i.e. ‘riba al-Fadhl’ and ‘ribā al-Nasiah’. For example, if the insurer pays the insured
or his beneficiary(s) in return of paid premiums more than what he paid, it
becomes ‘ribā
al-fadhl’,
while the payments by the insurer to the assured after a particular period of
time becomes ‘ribā
al-Nasiah’. Thus both situations make a life insurance
policy unlawful.[33] This is because, any transaction involving ‘riba’ does not have shelter in the Islamic Shari’a as Allah (SWT) declared to the effect:
6. It has element of ‘al-Gharar’ (uncertainty). Any
contract whose subject matter or the object involves ‘al-Gharar’ (uncertainty) the contract deemed to be null and void ab
initio. In a life insurance contract
the subject matter is a death and it is not certain whether the assured’s
death will occur during the policy period or not. Thus, such uncertainty in the life insurance
policy leads the policy to be invalid.
Moreover, a transaction involves ‘al-Gharar’ is
prohibited in the Islamic discipline as the Hadīth to this effect:
Similarly, in a
life insurance policy the assured always hope for a chance to gain which is in
the same nature as gambling and thus is prohibited in the Islamic ‘Sharī’ah.
8) There is no direct authority, which
justifies life insurance. There are some
who do not accept the life insurance policy as a valid transaction. They claim that a life insurance policy is a
transaction, which cannot be, justified by the injunctions from either the ‘Qur’an’ or
the ‘Sunnah’.
10) It is contrary to the principles of ‘al- Mīrath’ and ‘al-Wasiyyah’. It is a divine principle both Mīrath and Wasiyah
that one’s property and wealth upon death are, inter alia,
to be distributed according to the principles of ‘Mīrath’ and ‘Wasiyyah’. In the light of these principles the deceased
has no jurisdiction to determine the beneficiary(s) upon his death. In a life insurance policy however, the
assured nominates the beneficiary(s) who are expected to enjoy the benefits of
the policy. It seems that the assured
determines the beneficiary(s). Thus it
is contrary to the principles of ‘mīrath’ (inheritance) and
‘Wasiyyah’ (bequest).[41]
Recent
fatwa by Shaikh Al-Azhar.
4) Moreover, he went on to prolong his
discussion by arguing that, a life insurance contract evolves not around mutual
cooperation but unlawful elements and thus if a contract evolves around such
elements it is null and void[46]
relating on the following Hadīth:
“..Muslims are bound by the conditions except the of conditions
which prohibit the permitted one or the one which permits the prohibited one.”[47]
Response to Opponents in General
1) Getting involve with a life insurance
policy does not mean that one is insurance one’s own life, but it
is mere financial transaction based on the principles of al-Mudhārabah relying on the Qur’anic
doctrine of mutual cooperation,[49]
in taking an initiative towards rescuing orphans, widows, and other dependents
of the deceased from an unpredicted future material risk. In a life policy the insurer and the assured
equally believe prior to entering into the agreement that every creature is
subject to his own death, and thus the assured will surely meet his death. In other words, a life insurance policy means
an initiative to provide financial security for the orphans and so on, which
has nothing to do with insuring one’s own life as
claimed by some.[50] Moreover, an initiative is like ensuring the
future welfare of the off-springs (orphans), widows, and dependents, and it is
highly justified by the Islamic doctrine of the following Ahādith as the Holy
Prophet (SAW) stated to the effect:
“Narrated
by Saad bin Abi Waqqas (r.a)… the Holy Prophet (SAW) said… it is better for you to leave
your off-spring wealthy than to leave them poor, asking others for
help..”[51]
2) A life insurance contract does not
involve unlawful elements like al-Gharar, ribā,
or gambling as claimed by some.[53] It is a lawful financial transaction whose
subject matter is the assured’s death which is
not uncertain (al-Gharar) or the assured doe not hope for a chance (like
gambling) but he is taking an initiative for the future welfare of the orphans,
widows and so on, or it is a financial dealing based on the principles of al-Mudhārabah financing
technique whereby the parties involved share the profits over the paid-premiums
and do not get the interest which is different from the one under the
conventional system on interest (which is Ribā-based). However, since the life insurance contract
does not involve these unlawful elements, it is thus lawful and binding because
the Holy Prophet (SAW) said:
“Muslims
are bound by their contract except the one which prohibits the permitted one
and vice versa.”[54]
3) A life insurance policy does not
involve an element of Ribā as claimed by
some ‘Ulamā[55] but it is a
financial transaction which is in line with the principles of mutual
cooperation, which is based on the principle of the al-Mudhārabah financing
technique whereby both the insurer and the assured enjoy the share of profits
made over the paid-premiums plus dividend bonus as well as an amount of
donation which is subject to the financial condition of the assured’s
beneficiary(s). Thus, such transaction
of mutual cooperation is in line with the Qur’anic principle, where Allah
(SWT) commanded to the effect:
The assured in a
life policy does not determine the future financial condition of his beneficiary(s),
but he takes an initiative towards rescuing his off-spring and so on from
future material risk, it is also in line with the tradition of the Holy
Prophet (SAW) said:
“Whosoever
takes an initiative to alleviate one’s (inter alia material) difficulties,
Allah (SWT) will lighten his difficulties in the world and the next…"[58]
7) There is no element of uncertainty (Gharar) in a life insurance policy because in a life
insurance policy, the subject matter is the death of the assured; the
assured believes that he will die one
day as ordained in the Holy Qur’an, and thus it is not uncertain (Gharar). Moreover, sharing profits over the
paid-premiums are also not uncertain (Gharar) because a life insurance
policy is based on the principles of al-Mudhārabah, whereby if the
assured dies within the policy period, the beneficiary(s) will get the benefits
according to the principles of al-Mudhārabah. But, if the assured is still alive upon the
expiry of the policy period, he is also entitled to the claim according to the
principles of al-Mudhārabah. In all these situations, the subject matter,
the object and consideration (premiums) of the transaction are clear and not
uncertain (Gharar).
The Holy Prophet (SAW) told a bedouin Arab who left his camel untied trusting to the will of Allah (SWT): Tie the camel first then leave it to (put your trust on) Allah (SWT)”[63]
1) In the Sharī’ah discipline no one
has the right to insure the others’ property unless there is a fear of unjust enrichment, losses or
destruction. In a life insurance policy
the insurer insures a benefit over the paid-premiums (by the assured), for the
welfare of the beneficiary(s) of the assured, for an unexpected event, the
assured’s death (loss of life) and also for the fear of the loss
of the beneficiary’s(s) material stability upon
the death of the assured. In all
situations the life insurance policy contains an element of loss. Abu Jaib has pointed out that an
insurance policy is a compensation for any loss incurred by the insured and it
is neither a profit nor a gain like in betting.[68] Hence a life insurance policy is not contrary
to the Sharī’ah discipline.
2) A life insurance policy does not
involve elements of Ribā but it is a
financial transaction based on the principle of al-Mudhārabah financial
technique relying on the principles of mutual cooperation which is justified by
the Qur’anic sanction. Allāh
(SWT)
says to the effect:
“Narby
Abu Huraira (r.a) the Holy Prophet (SAW) said… whosoever takes an initiative
(towards the welfare of) one’s inter alia financial
difficulties, Allah (SWT) will lighten his difficulties in this world and in
the hereafter.”[71]
“Narrated
by Safwan bin Salim (r.a) the Holy Prophet (SAW) 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 (SWT) of like a person who fasts during the day and pray through
out the night”[72]
5) A life insurance contract to involves
unlawful elements like Gharar, gambling, Ribā,
etc. which make the contract unlawful as claimed by Shaikh al-Azhar[74] But it is a mutual financial contract which
is free from the above unlawful elements (as proved in the earlier discussion)
and therefore, it is binding as justified by the saying of the Holy Prophet
(SAW):
“Muslims
are bound by their contract except the one which prohibits the permitted one or
permits the prohibited one…….”[75]
Based on these
responses, I would like to humbly remark that the idea that Shaikh al-Azhar
put forward in conclusion of his Fatwa, advising Muslim Ummah not
to engage in a life insurance policy because it is Haram (unlawful)
should be rebutable. I sincerely expect
that Muslim Ummah should not be confused but would clearly understand the
concept that life insurance is valid if applied accordingly and benefits can be
rightly gained from it.
From the earlier debates
and justifications based on various authorities and authenticities, it has been
quite clear that a life insurance policy designed under the Islamic model is an
alternative solution to a conventional life insurance policy for the
contemporary Muslim Ummah.
Nevertheless, I would also like to present a few other grounds here to
justify the idea that a life insurance policy is not permissible for the
purpose of luxury but it is permissible and encouraged by Muslim Ummah for
necessity, in order to ensure economic growth and stability among Muslim Ummah
of today. Further grounds for the
justification of a life insurance policy are as follows:
1) A life insurance policy is similar to a
contract of al-Wadiah (deposit) whereby two parties in a financial transaction
engage in an agreement that one party deposits money as an Amānah
(trust)
to the other party to be kept for the purpose of safety.[76] A Wadiah is justified by the Qur’anic
injunction where Allah (SWT) commanded people to fulfill the trust (of, inter
alia, Wadiah). Allāh
(SWT) ordains
to the effect:
“Allah (SWT) commands you to
render back your trusts to those to whom they are due..”[77]3) Every transaction is originally acceptable, unless it involves unlawful elements. Relying on this principle, it is admitted here that in a life insurance policy the elements contained are in line with the Sharī’ah principles (the life insurance policy which is based on the Islamic model), and therefore it is undoubtedly lawful.
Salahi relying on his
acknowledgement poses the question:
“Why should Family security be lawful in one
system and not in the other when the method of operation is practically the
same?[84]
“...It is better for you to leave
your off-spring wealthy than to leave them poor, asking others for
help...”[85]
8) A life insurance contract is a binding
promise. In the light of Islamic jurisprudence,
a promise either unilateral or bilateral, is in both situations binding as
ordained in the Holy Qur’an:
According to Imam
Malik (r.a), the founder of the Maliki
School
9) A life insurance contract evolves
elements of donation. This is because
the assured pays regular premiums for the protection of his (beneficiary(s);
such payments of premium is like a donation for helpless people. Moreover, once the insurer pays an amount of
money together with an additional amount from the charitable fund to the beneficiary(s)
of the assured in consideration of the paid premiums this also involves element
of donation. A donation is lawful in the
Islamic jurisprudence as justified by the practices of the Prophet (SAW):
FINAL SUBMISSION
Analysis concludes
that convention and Islam design different models of life insurance
policies. There are many similarities in
both systems but both also diversify. In
conclusion, I would like to summarize where the conventional and Islamic model
are in contrast. Finally, I wish to
express a hope for the future application of the Islamic life insurance
policy. To summarize the results of the
research:
3. The nominee(s) under the conventional
system is an absolute beneficiary over the policy, whereas the nominee(s) under
the Islamic model of a life insurance policy is nothing more than a trustee(s)
who is responsible for receiving the benefits over the policy and distributing
them among the heirs of the assured according to the principles of Mīrath and Wasiyah.
Analysis throughout the
research and the summary show that a life insurance policy under the Islamic
model is different from the one which is operated under the conventional
system. Hence, I would like to extend my
humble request to the respectable Ulamā, who oppose a
life insurance policy generally, that they could oppose the conventional life
insurance but not the one, which is designed under the Islamic model. It is my sincere hope that this article might
enable the Muslim Ummah to have no further doubt on the application of
an Islamic life insurance policy.
Islamic scholars could come up with a better model as an alternative to
the existing life insurance operated under the conventional system for the
noble purpose of ensuring further economic growth in contemporary Muslim
society.
Prof. Dr. Mohd. Ma’sum Billah
www.drmasumbillah.blogspot.com
[1] ‘Fatwa’, issued by The
National Council for Muslims Religious Affairs in Malaysia, see in [1974] I
MLJ at x.
[2] See Billah, M. Masum, “Life
Insurance? An Islamic View”, in ALQ, 8 : 4, 1993 at 319.
[5] Sahih al-Bukhari (trans. Eng. Lahore ,
Pakistan
[8] Sahih
Muslim as compiled in al-Nawawi, Forty Hadith
(trans. Eng) Ezzeddin Ibrahim, et. al. I.I.F.S.O., 1985 at no. 36.
[12] Mufti
Mawlana Mohd. Shafi, Bima
Zindegi, (trans. Eng) Anwar Ahmed Meenai, Life
Insurance, Darul Ishat, Karachi
[21] See in
Khuan, Lee Kam, Life Insurance in Malaysia, life insurance association
of Malaysia , Kuala Lumpur
[24] Sunan
Al-Tirmidi, Cagri Yayianlari, Istanbul Vol. 4,
1981, in Kitabu Sifatul Qiyamat Wal-Raqaiq Al-Wara, Bab 60, NO. 2517 at
668
[25] See Adil
Salahi, ‘Is Life Insurance Haram?” in New Horizon, Islamic
Banking and Insurance, Nov. 1995 no. 45 at 12
[29] See in
Siddiqi, M.N., “Muslim Economic Thinking: A
Survey of Contemporary Literature”, (Ed.) Ahmad, Khurshid,
in Studies in Islamic Economics, The Islamic Foundation , U.K.
[37] As quoted
in Idoi, A.Rahman, Shariah: The
Islamic Law, A.S. Noordeen, Kuala Lumpur, 1984 at 359.
[38] Musleh
Uddin, M. Insurance and Islamic Law, 3rd ed. Islamic
Publications Ltd., Lahore
[65] See the
Judgement of the Supreme Court of Pakistan in Amtul Habeeb v Musarrat
Parveen, [1974] PLD 185
[66] This
principle has been laid down in a fatwa issued by the National
Council of Muslim Religious Affairs, Malaysia
[79] Al-Zarqa,
Mustafa, op. cit., at 60 also Alwan, Abdullah, Akhamal Islam fi
al-Tameen, Egypt
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