Islamic Model of Life Insurance (Family Takaful ): A Global Reality

Islamic Model of Life Insurance (Family Takaful ):
A Global Reality

© Dr. Mohd. Ma'sum Billah
ABSTRACT

Sharī'ah model of Life Insurance 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 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'.

This article attempts to come up with a solution to the operation of
an Islamic model of life insurance policy in contemporary Muslim
societies, refuting the misconceptions that some Muslims have placed
against the validity of a life insurance policy.

ADDRESSING THE PROBLEM

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:

"No soul can die except by the permission of Allah (SWT), the term
being fixed (by Allah SWT)…. "

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:

"…They shall reap the fruit of what they did, and you what you do…"

Thus, it does not mean that a criminal will simultaneously be
accountable for his/her own wrongful act and also be depriving from
other rights. It is a fundamental right of everyone in society to
enjoy in business and other matters that which they may require
lawfully. Such personal rights should be exercised by every equally
regardless of whether one is innocent or a criminal as long as the
rights within the lawful sphere. Hence, life insurance policy is a
transaction whereby the assured's beneficiary(s) should not be
deprived due to the assured's criminal act (i.e. act of suicide, or
being killed for a wrongful act etc.). The agent in a life insurance
policy is not supposed to be paid his salary out of the assured's
premiums because they work for "The Company" and thus should be paid
by "The Company". For example since a life insurance policy is based
on the principle of 'al-Mudhārabah', whereby the involved parties i.e.
insurer, assured, agents share the profit over the business which is
partly run by the assured's paid-premiums, therefore, the interest for
the agent in a life insurance policy is a share of profits made over
the assured's paid premiums plus dividend and bonus according to the
company's policy. As regards to the insurable interest in a life
policy under the Islamic model, the policyholder himself has an
insurable interest if he is alive upon the expiry of the policy
period. If the assured dies at any time within the policy period, the
insurable interest is to be vested only in the heirs of the assured
according to the principles of 'Mīrath' and 'Wasiyyah.'

LIFE INSURANCE & ITS RATIONAL OUTLOOK

Having an Islamic life insurance policy does not mean that one has
insured one's own life, but it is a fair financial transaction
catering for the benefits of certain helpless people in the society.
The rationale behind of having a Sharī'ah justified life insurance
policy could be summed up as follows:

1) It is one of the means of providing a material safeguard for
offspring and is thus in line with the saying of the holy prophet SAW.
He (SAW) spoke to this effect:

"… 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)]

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:

"The one who looks after and works for a widow and for a poor person
(dependent), is like a warrior fighting for The Cause of Allah (SWT),
or like a person who fasts during the day and prays throughout the
night. " [Narrated by Safwan bin Salim ( r.a)].

3) A life insurance policy guarantees a future material protection
for, inter alia, orphans, and it is again justified by the saying of
the holy Prophet (SAW):

"I and the person who looks after an orphan and provides for him, will
be in paradise like this, putting his index and middle finger
together…." [Narrated by Sahl bin Saad (r.a)].

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)].

5) Having a life insurance policy is like taking an initiative towards
reducing the poverty rates and contributing towards a reasonable
comfortable life without such difficulties. It is thus justified by
the Qur'anic principle whereby Allah (SWT) advised the creatures to
seek from Him for The Comfortable life. He (SWT) says to the effect:

"…our Lord! Give us comfortable life in this world and comfortable in
the hereafter..."

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:

" …Sustain in mutual cooperation among yourselves in righteousness and
piety..."

7) Finally having a life insurance policy is like taking an initiative
towards ensuring a self-reliant society, without facing hardship and
difficulties, and, of course, an economic growth in society which may
result in the elimination of hardship and bring about a comfortable
standard of living in the society. It is thus in line with the
Qur'anic principle where Allah (SWT) Himself prefers an easy life for
the creatures rather than them having difficulties. 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.."

MODERN LIFE INSURANCE Vs. FAMILY TAKĀFUL

The purpose of scrutinizing is to discover the basic contrast between
the conventional system of life insurance and the Islamic model of it.
This is because some 'Ulamā and many Muslims are of the impression
that a life insurance is totally prohibited in Islam. The argument
has been raised from the scenario of life insurance policy practiced
under the conventional system. It is to be acknowledging here that
even though in both the conventional system as well as in Islam a
notion of life insurance policy is being designed, there are
undoubtedly several aspects whereby both systems are in conflict in
both principles and practices. I would therefore, like to sum up the
basic contrast between them which may enable us to grasp the nature of
the Islamic model of a life insurance policy as an alternative to the
one which is practiced under the conventional system. The basic
contrasts are as follows:

1) A life insurance policy under the conventional system evolves
around the element of 'Ribā' whereas an Islamic model of life
insurance policy is totally free from the elements of 'Ribā' for it is
operated based on the principle of 'al-Mudhārabah financing technique.

2) In a conventional system of life insurance policy, the nominee(s)
is an absolute beneficiary(s). Suffian J. in Re Man bin Mihat, gave
a verdict that, the nominee(s) inter alia in a life insurance policy
takes absolutely and exclusively the benefits of the policy. In
contrast, the nominee(s) in a life policy under the Islamic model is
not an absolute beneficiary(s) but a mere trustee who is in a position
to receive the benefit over the policy on behalf of the assured's
heirs and distribute it among them according to the principles of
'Mīrath (inheritance) and 'Wasiyyah' (bequest) . In Karim v. Hanifa
the High Court of Karachi ruled out that the nominee(s) in a life
insurance policy is nothing more than a mere agent. The National
Council of Muslim Religious Affairs in Malaysia, also issued a fatwa
to the same effect in 1979, that the nominee(s) in a life insurance is
a mere trustee who is supposed to receive the benefit over the policy
and distribute it among the heirs of the as according to the
principles of 'Mīrath' and 'Wasiyyah'.

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). 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:

"…Cooperate among yourselves in righteousness and piety..."

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.

4) In the operation of a life insurance policy under the conventional
system, the payments for the agents are to be paid out of the
assured's paid-premiums, whereas under the Islamic model of a life
insurance policy, the agents work for the company and thus the company
itself should pay them. This means that the payment for the agents
could include a share of profits made over the paid premiums, plus
dividends and bonus 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 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.

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'.

UNDERLYING PRINCIPLES AFFECTING LIFE INSURANCE UNDER SHARĪ'AH DISCIPLINE

It has obviously been established from the earlier discussion that a
life insurance policy under the Islamic model is different from the
one practiced under the conventional system. Here I wish to propose
the following basic governing principles for the Islamic model of life
insurance.

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):

"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 Allah (SWT)."

2) The life insurance policy should not be involved with 'ribā' but
based on the principles of the 'al-Mudhārabah' financing technique,
whereby the insurer as well as the assured or his beneficiaries share
the profits, bonus and dividends accordingly.

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 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',' 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'.

MISCONCEPTIONS AGAINST THE VALIDITY OF LIFE INSURANCE

Some Islamic scholars oppose the idea of contract of life insurance
generally. They argue that, a life insurance contract is contrary to
the Divine principles and thus, is not permissible in Islam. There
are another group of 'Ulamā who agreed to the general insurance with
certain conditions but they opposed the application of life insurance
policy. In this section, an attempt is made to highlight the
opposing views of the 'Ulamā against the validity of life insurance in
today's society and possible refutation to it.

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.

Grounds for the Opposing Views

The grounds for opposing the validity of life insurance are in fact
based on many reasons. Here, I would like to sum up some of the
principal grounds upon which the 'Ulamā and many Muslims are reluctant
to accept a life insurance policy under the shield of Islamic
teachings. Their arguments rely on the following grounds:

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.

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."

3) It contains the element of 'Riba'. 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. This is because,
any transaction involving 'riba' does not have shelter in the Islamic
Shari'a as Allah (SWT) declared to the effect:

"… Allāh (SWT) permitted trade while prohibited ribā..."

4) It supersedes the Will of Allah (SWT). In a life insurance policy,
from the commencement of the contract between the insurer and the
assured, the assured always aims that upon his death, his
beneficiary(s) would gain a large amount of money. In such a
situation the assured predetermines his own death as well as
confirming the material gain for his beneficiary(s) whereas, Allah
SWT) is the one who determines one's death as well as future earnings.
Allah (SWT) reminds us to the effect:

".. Nor does anyone know what it is that he will earn on the morrow,
nor does anyone know in what land he is to die, verily Allāh (SWT) has
full knowledge and He is acquainted (with all things)."

5) It contains an element of betting. In a betting the gambler always
hopes for a chance to gain. Similarly, in a life insurance policy the
assured upon the payment of premiums to the insurer always hopes for a
change of gaining a large amount of money. Hoping for such a chance
is similar to gambling and thus 'Sharī'ah' never recognizes it as a
valid transaction.

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:

"The Holy Prophet (SAW) forbade the transaction through fraudulent
means or the Gharar Sale."

7) It contains the element of Maisir (gambling). In a gambling the
gambler pays a certain amount of money and subsequently hopes for a
chance to gain an additional large amount of money. Any transaction
involving such element of gambling is prohibited in the Shari'ah, as
Allah (SWT) says to the effect:

"…They ask thee concerning wine and gambling say in the them is great sin..."

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'.

9) It is contrary to the principles of 'Tawakkul' (placing the trust
in Allah (SWT). It is a fundamental obligation on believers, in
conformity with their faith, to place their trust always on the
Al-Mighty Allāah (SWT). As Allah (SWT) commanded to the effect:

"….but on Allāh (SWT) 'Tawakkul' (put your trust) if you have faith'.

In a life insurance policy once the assured enters into an agreement
and pays regular premiums while he hope that one day he will die and
the insurer will protect his beneficiary(s) financially. In this
case, the assured puts his trust not in Allah (SWT) but on the insurer
which is contrary to the Qur'anic principles of 'Tawakkul' and
therefore a life insurance policy should be deemed to be unlawful.

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).

Recent fatwa by Shaikh Al-Azhar.

Sheikh al-Azhar, Al-Shaikh Jad-al-Haq Ali Jad al-Haq, responded in a
fatwa' session on the position of life insurance in Islamic Shari'ah
which has appeared in 'al-Iqtisadul Islami' July 1995, in the Fatwa
column, at 60. In his Fatwa he established that a life insurance
policy is prohibited in Islamic Sharī'ah. His claim was based on the
following grounds:

1) In the light of the principles of Islamic Shari'ah no one could
ensure others' wealth or property unless there is a fear of unjust
enrichment, losses or destruction. In a life insurance policy these
three circumstances are not available; moreover, a life insurance
policy involves the element of Ribā and therefore it is not allowed in
Islam.

2) Life insurance is a policy which insurers one's life and thus it is
not permissible in Islam.

3) A life insurance policy involves the element of al-Gharar
(uncertainty). A transaction, which involves Gharar, is not
valid in the eyes of the Islamic Sharī'ah and therefore a life
insurance is unlawful.

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 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."

5) Finally, he advised Muslims that Muslims should get involved in a
life insurance policy because anyone who obtains money from such a
policy is Haram.

RESPONSE TO THE MISCONCEPTIONS

There are differences of grounds relying on the divine authorities,
authenticities and analytical approaches, put forward by distinguished
Islamic scholars in opposing the operation of life insurance policy in
the light of Sharī'ah discipline. I sincerely believe that if those
scholars could spend some time deeply concentrating on the issue of
life insurance policies without looking at the nature of how the
conventional system operates but consider the material risk of
unfortunate orphans, widows and other dependents who may unexpectedly
loss their bread winner, then surely they could come up with an
alternative Islamic model of life insurance justified by the divine
sanctions, which may protect these vulnerable persons from unexpected
future material risks and ensure the elimination of poverty in
society while guaranteeing an economic growth in the Muslim Ummah. In
this part of the article, I would like to respond to the views put
forward by the opponents against the validity of life insurance
policies, which will enable us to understand the actual scenario of a
life insurance policy under Islamic teaching, and be able to
distinguish a life insurance policy under Islamic teaching from one
which is operated under the conventional system.

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, 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. 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.."

"Narrated by Saffwan 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 Allah's cause or…. Fasts during the day
and pray through out the night"

Relying on the above justifications, it could be stated here that a
life insurance policy does not mean to insure one's own life, but it
is a great contribution towards the future welfare of orphans, widows
and other dependents.

2) A life insurance contract does not involve unlawful elements like
al-Gharar, ribā, or gambling as claimed by some. 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."

3) A life insurance policy does not involve an element of Ribā as
claimed by some 'Ulamā 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:

"..Cooperate ye one another in righteousness and piety.."

4) A life insurance policy does not supersede the Will of Allah (SWT)
nor is it contrary to the principles of Taqdir (fate), as some argue
that the assured in a life insurance policy determines his own death,
whilst ensuring a future financial gain for his beneficiary(s), and
meanwhile places his trust in the insurer for the financial protection
of his beneficiary(s). These situations overrule the power of Allah
(SWT). In responding to this arguments, in a life insurance policy
the assured believes that he will surely die, which does not mean that
he determines his own death, and such a believe is in line with the
Qur'anic injunction:

"Every soul shall have a taste of death..

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…"

Moreover, the assured does not place his trust in the insurer to
protect his beneficiary(s) materially but he is in financial agreement
with the insurer for a mutual cooperation to look after the future
welfare of his beneficiary(s), and it is no doubt justified by the
Qur'anic principle of mutual cooperation:

"…Cooperate ye one another in righteousness and piety..."

5) A life insurance policy does not involve elements of betting.
Mustafa Al-Zarqa opined that in a bet the person always hopes for a
chance and there is no element of cooperation in it, rather it is
some sort of competition. In contrast, a life insurance policy is
based on the principle of cooperation in which the assured never
hopes for a chance but works for the welfare of orphans, widows and
other dependents which is in line with the saying of the Holy Prophet
(SAW).

6) A life insurance policy does not evolve around the element of
gambling because a life insurance policy is for the purpose of the
material welfare of orphans, widows and other dependents, whereas
gambling is a game of chance whereby the gambler always hopes to gain.
Therefore, a life insurance policy is contrary to gambling.
Al-Dareer acknowledged that in the insurance policy there is safety
against danger whereas gambling creates danger, so how could an
insurance policy be equal to gambling?

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).

8) Even though there is no express authorities from the Qur'an or
Sunnah highlighting the life insurance policy there are a number of
authorities from the Qur'an and Sunnah which impliedly justify a model
of life insurance policy for the Muslim Ummah which is quite different
from the one operated under the conventional system. For example, a
life insurance policy is based on the principle of mutual cooperation,
is justified by the Qur'anic injunction at 5:2, it is operated based
on the principle al-Mudhārabah financing technique which is justified
by the Sunnah of the Holy Prophet (SAW) and there are many other
authorities and authenticities which justify different aspects of life
insurance policies as mentioned earlier.

9) Some argue that a life insurance policy is contrary to the
principles of Tawakkul (placing trust in Allah (SWT)) because in a
life insurance policy, the assured puts his trust not in Allah (SWT)
but in the insurer who is expected to protect the beneficiary(s)
financially. Responding to this argument, I would like to point out
here that a life insurance policy is not contrary to the principle of
Tawakkul, but it is a policy whereby the insured takes an initiative
for the welfare of his off-springs and so on, in which he mutually
agrees with the insurer that the insurer will undertake to provide a
material assistance in consideration of the paid-premiums. The
assured simultaneously places his trust in Allah (SWT) for the
betterment of his beneficiaries' future life. Thus the assured does
not Tawakkul on the insurer but on Allāh (SWT). It is in line with
the saying of the Holy Prophet (SAW):

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)"

10) A life insurance policy is not contrary to the principles of
Mīrath (inheritance) and Wasiyah (bequest). In a life insurance
policy the assured nominates a particular person(s) as a nominee(s)
who is nothing more than a trustee, who is under a responsibility to
receive the benefits over the policy on behalf of the heirs of the
assured and distribute them amongst them according to the principles
of al- Mīrath and Wasiyyah. Hence, the nominee(s) is entitled only to
a portion of the benefits over the policy if he/she falls under the
category of heirs of the assured.

Analyzing the Recent Fatwa of Sheikh Al-Azhar

Sheikh Al-Azhar al-Sheikh Jad al-Haq Ali Jad al-Haq has submitted in a
Fatwa session recently that a life insurance policy is in the light of
Shari'ah unlawful (haram). His claim for such a decision was based on
a few grounds (as mentioned earlier). In this part of the article, I
would like to respond to the grounds that the honorable Sheikh has put
forward as a basis for opposing the validity of life insurance
policies as follows:

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. 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:

"…Cooperate ye one another in righteousness and piety..."

3) A life insurance policy does not involve insuring one's own life
but it is a mutual financial transaction towards the welfare of
orphans, widows and other dependents. Such an initiative is in fact
well justified by the sayings of the Holy Prophet (SAW). He (SAW)
however said to the effect in the following Ahādith:

"Narrated by Sahal bin Sa'ad (R ) the Holy Prophet (SAW) said: I and
the person who looks after an orphan and provides for him will be in
paradise.."

"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."

"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"

"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.."

4) A life insurance policy does not contain any element of al-Gharar
(uncertainty). The assured believes that the subject matter of life
insurance is his death which is certain and not Gharar, moreover, the
benefit over the policy in consideration of paid-premiums is also
available which is certain according to the principle of al-Mudhārabah
and thus there is no element of Gharar in it. Hence, a misconception
against a life insurance policy involves an element of gharar is very
rebutable.

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 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……."

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.

FURTHER GROUNDS FOR JUSTIFICATION IN THE LIGHT OF SHARI'AH AUTHORITIES
AND AUTHENTICITIES

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. 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.."

2) A life policy is a financial transaction which had been dealt with
by the people before Islam under the doctrine of 'al-Aqilah as a 'Urf
(custom) which had been accepted by the Holy Prophet (SAW) whereby the
people of every tribe used to deposit money for a certain amount in
order to pay blood money as a compensation on behalf of the killer of
their own tribe to the heirs of the victim of other tribe. Such 'Urf
(custom) was deemed to bring benefit to society. A custom, which is
beneficial to society, is permissible in Islam as justified by the
saying of the Holy Prophet (SAW):

"Whatever Muslims see good, it is good in the eyes of Allah (SWT)"

A life insurance policy is based on the sanction of mutual cooperation
so as the doctrine of al-'Aqila practice was also based on mutual
cooperation, therefore, Zarqa and Alwan accepted the idea that there
is enormous similarity between insurance and al-'Aqila in the sense of
cooperation.

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.

4) A life insurance policy is for the purpose of sustaining public
interest. For example, the purpose of a life insurance policy is to
protect the orphans, widows, and other dependents of the assured from
future material risk and thus, it is a transaction to be justified by
the doctrine of Masaleh al-Mursalah (public interest). A transaction
which is in the public interest is lawful, because it eliminates
hardship and assists a comfortable life for human beings which in line
with the Qur'anic injunction:

"...Allāh (SWT) intends every facilities (inter alia comfortable
life) for you; He does not want to put you to difficulties..."

5) A life insurance is not a gain or hoping for a chance, but it is a
policy for providing compensation for damage or loss. This is because
the policy is an agreement between the insurer and the assured that,
once the assured dies within the policy period, the insurer will pay
an amount of money in consideration of paid-premiums to the
beneficiary(s) of the assured. Such a payment is like a compensation
for the loss of opportunity of future earning by the breadwinner
(assured) due to his death. To provide such compensation is like a
mutual cooperation, which is commanded by Allah (SWT).

"... Cooperate one another in righteousness and piety..."

6) A life insurance policy is similar to a retirement pension scheme.
Al-Zarqa and al-Alwan apparently discovered that all contemporary
scholars agreed on the validity of retirement pension scheme. Adil
Salahi similarly acknowledged that

"All scholars and seats of Islamic learning approved of the concept
of pension because it gives the subscriber security for himself and
his Family in the difficult circumstances of his leaving work or in
case of death."
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?

Relying on the above justifications it is admitted here that life
insurance is like a retirement pension scheme (which had been widely
introduced during the period of Sayiidana Omar (r.a) therefore, it is
not unlawful transaction.

7) A life insurance policy is also justified based on the principle of
necessity (Darurah). For example, it is an important task for the
guardian to work for the welfare of his own dependents. It is in line
with the tradition of the Holy Prophet (SAW) where he said to the
effect:

"...It is better for you to leave your off-spring wealthy than to
leave them poor, asking others for help..."

It is also to be noted here that in the case of necessity that which
is prohibited is also to be permitted in the Islamic discipline as Ibn
Nawjeem stated in his book al-Ashbah Wa al-Nazaira,

"Necessity permits an unlawful act."

A life insurance policy of course does not allow for an unlawful
transaction, but why not, the principle of necessity allows it to be
permissible.

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:

"O ye who believe? Fulfill all agreements"

According to Imam Malik (r.a), the founder of the Maliki School of
law, every binding promise is lawful, therefore, every insurance
contract contains a binding promise and thus it is lawful. In other
words, in a life insurance contract, there is an agreement between the
assured and the insurer which is a binding promise towards the
protection of widows, orphans and so on, from future material risk,
and therefore such a binding promise makes a insurance contract valid.

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):

"The Prophet (SAW) used to accept presents (donation)"

Relying on the above authenticity, it is analytically admitted here
that a life insurance policy does involve elements of donation and
therefore, such a policy is to be held lawful in the eyes of the
Islamic discipline

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:

1) A life insurance policy under the Islamic model is a different one
from the one, which is operated under the conventional system. A life
insurance policy under the conventional system involves, inter alia,
Ribā opposed to the principles of Mīrath and Wasiyah, payments of
agents to be out of the paid premiums, etc. In contrast, a life
insurance policy under the Islamic model is like a pension scheme,
which is operated based on the principles of the al Mudhārabah
financing techniques, does not clash with the principles of Mīrath and
Wasiyah, as highlighted earlier, and also the payments for the agents
to be paid by the insurer out of the profit made over the paid
premiums.

2. The insurable interest in life under the conventional system is to
be vested to those who are not necessarily to be the heirs of the
assured. In contrast, an insurable interest in life under the Islamic
model should be vested to only those who are entitled to the property
of the assured according to the principles of Mīrath and Wasiyah.

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