fiqh of insurance

In the Name of Allah, the Most Gracious, the Most Merciful.

As-salamu alaykum wa-rahmatullahi wa-barakatuh.

Brother in Islam,

You have asked whether it is permissible to take out life insurance and income protection insurance.

In principle, conventional insurance is a contract in which a person pays premiums in exchange for a payout that may or may not occur, in an amount that bears no fixed relation to what he paid. This contains the uncertainty and the element of chance that the Shariah prohibits in contracts of exchange, and the pooled premiums are invested by the insurer in interest bearing instruments. For these reasons, the scholars hold conventional insurance to be impermissible, whether it is life insurance, income protection, or any other type.

An exception is made for insurance that is imposed by law, such as compulsory vehicle insurance, or that is required as a condition of a profession or a licence, because the person has no choice in it. In that case one takes the minimum required and does not treat any payout above one's own contributions as one's own, giving the excess in charity. This is permissible, and where a provider of this kind operates in Australia, you may use it after confirming its structure.

Accordingly, as a single self employed person who is not compelled by law or profession, it is not permissible for you to take out conventional life insurance or income protection insurance. If your work later requires a specific insurance as a condition of practice, you may take the minimum required.

Allah knows best

Mufti Mirza-Zain Baig