Is insurance permitted?

The basic idea of insurance, that many people together stand by one person who suffers a loss, does not contradict Islam. What matters is that the contract is free of interest and gambling.

In everyday life, hardly anyone can do without insurance. Houses, cars and much else are insured, and some insurance is even required by law. Many Muslims therefore wonder whether this is compatible with their faith.

The basic idea of insurance is mutual help. Many people pay a small contribution into a common fund. If misfortune strikes one of them, the loss is made good from that fund. The first verse above calls on people to help one another in what is good. The hadith shows how much the Holy Prophet Muhammad (saw) valued people standing together in times of need. Cooperative insurance that works on this principle is permitted in Islam.

Islam does, however, clearly forbid two things, interest and gambling. Where a contract depends on money growing through interest, or where it turns into a bet on luck, caution is needed. The second verse above draws exactly this line between lawful trade and forbidden interest.

Insurance policies vary a great deal, and conditions differ from country to country. Anyone who is unsure about a particular contract should ask the imam of their local mosque. He knows the guidance that applies and can help in the individual case.