I have a serious issue relating to Group Life Insurance Beneficiary Policy, my company pays, on my behalf, the required amount to Life Insurance and we are required to complete a form stating the required beneficiaries in case of death of an employee during duty hours. Are such policies allowed in Islam? What does the Quran and Hadeeth say about this? What is the view of our scholars on this subject?

All perfect praise be to Allah, The Lord of the Worlds. I testify that there is none worthy of worship except Allah, and that Muhammad is His slave and Messenger.

First, it is known that insurance is a recent issue. It came into existence in Italy in the 14th (A.C) century in the form of maritime insurance.

Insurance is of two kinds:

1. Cooperative insurance:

It means that some people enter into an agreement that each one has to pay a fixed sum of money to be given to any of them in case of any danger befalling him. This, in fact, is rarely practiced in everyday life.

2. Insurance with permanent premium:

This requires the insured to pay a permanent sum of money to the insurer, which binds him by virtue of this agreement, to pay a sum of money, in case of any danger befalling the insured, as a compensation, to be paid to the insured himself or his heirs. This form is one of the compensatory contracts.

The cooperative insurance is, in fact, a form of contribution contracts. This kind of insurance is not intended to produce profit. It is a type of cooperation with one another for mutual benefit. This is a lawful form of insurance but it is rare today, whereas "the insurance with permanent premiums" is common in all fields of insurance, life, cars, building, health and so on.

The benefit received from this latter kind of insurance is always in doubt, i.e. it depends on "chance" or "probability" since it is not definite that the insured will receive any sum of money in return for the premium that he has paid.

In other words, the insurer will pay nothing to the insured unless some mishap befalls him. In addition, if some damage befalls the insured, the insurer may be obligated to compensate the insured a sum greater than the amount of the premiums he had paid, thus giving the insured more than his right.

In order to recognize the Islamic legality of current forms of insurance, we need to consult the Islamic Fiqh (jurisprudence).

As a rule in the Sharee’ah, no one is obliged to guarantee another's property in value or quality, unless he has unjustly seized, lost or spoiled it by some means, or through an obligatory contract or breach of trust, or one has ensured to pay for such damage or loss. As we see, none of the above-mentioned points is actualized in the second kind of insurance contract; i.e. the insurance with permanent premium. This latter contract of insurance guarantees one's property in case of ruin, spoilage or death in accident. In addition, the insurer is not a genuine guarantor according to the Sharee’ah as well as his guarantee, which is full of deceit, injustice, and Gharar (dependence on chance in aleatory contracts).

The Sharee’ah does not validate gaining money by any of the above or similar means. It does not legalize consuming people's wealth in falsehood. Allah Says (what means): {O you who have believed, do not consume one another's wealth unjustly but only [in lawful] business by mutual consent.} [Quran 4:29]

Verily, the Sharee’ah legalizes contracts that are not dependent on Gharar or causing harm to the insurer or insured. All non-Islamic commercial insurance contracts are based on Gharar (risk + chance), thus causing harm to one of the two parties.

The insurance companies collect premiums and invest them in usurious transactions, and then pay the insured compensation damages from their big profits, although such companies do not cause any damage or loss by any means to the insured. Companies' warrants, collection of premiums and all related transactions and conditions are illegal. This kind of insurance contract is nothing but "giving money in exchange for money". It is a clear excessive Gharar, which – according to the majority of the jurists –produces a bad influence on all financial compensations. So, there is no doubt that Riba is involved in this contract. The scholars define Riba as adding some money to some value as an interest without getting anything instead of that. Interest is a necessity in the insurance system. It is a usurious transaction that depends on premiums, their interest and investment in usury-taking banks.

As it is in most cases of insurance contracts (whether there is a Gharar or not), one pays a small sum of money and receives a large amount or one pays, but receives nothing.

This is a pure Riba.

In addition, if the insured fails to pay the premium on time, he is bound to pay the interest, which is illegal in Islam. At the same time, this kind of insurance contract contributes to carelessness by the people who are insured since they rely on insurance companies to pay for damage or loss.

This, in turn, leads to lack of trust in Allah, the Great and Almighty.

The Fiqh Academies prohibited insurance except the cooperative form. Also, life insurance is the worst since the insured will rely on the insurer to care for his heirs instead of relying on Allah in everything. This, reliance will spoil hearts, lead to heedlessness and negligence and make people turn away from Allah's path in words and deeds. As a result it will put people's faith in danger. That is why, the scholars who legalize some kinds of insurance prohibit life insurance.

To conclude, we say that Muslims should stick to the teachings of Islam in their day-to-day activities, especially concerning financial transactions. Our beloved Prophet Muhammad said: “The feet of a servant will not move on the Day of Judgment until he is questioned about five things: his life how he spent it, his youth how he used it up, his wealth from where he earned it, and where he spent it, and about his knowledge how he acted upon it.” [At-Tirmithi]

For more benefit, please refer to Fatwa 82599.

Allah knows best.