Insurance: Do I renew my car insurance?

Q285 :I believe that all Islamic legislation are perfect and must be obeyed. Also I believe in predestination. I have no doubt that no individual or group of people can cause me any damage unless Allah so wishes. Within this framework, I have been wondering recently on the desirability or otherwise of renewing my car insurance when it lapses. Perhaps I should say that insurance does not offer any fabulous prizes as a lottery, but compensates me for unforeseen loss when it takes place. No element of interest or usury is involved. I should add for explanation that many manufacturers of machinery offer a sort of guarantee on their products for a limited period of time. In other words, they insure it for the customer. Such a warranty represents a certain amount of cost to the manufacturer, which is passed over to the customer and included in the price of the product. I will be grateful if you comment on this question of car insurance.

A285 : The question of insurance is a thorny one, on which scholars have differed greatly. What I am giving you below is a summary of what I have been able to determine on the basis of study and discussions with a number of scholars. When you insure a car, you make a contract with the insurance company which requires you to pay a premium in which the company guarantees to undertake any repairs of the damage which is caused to your car or someone else's car as a result of an accident and perhaps compensates you or the other people involved for any injury suffered. Some insurance companies also offer the use of a car during the period when your damaged car is being repaired. In other words, they take care of all the inconvenience which is caused to you by the accident which may have been the fault of some other driver. There is certainly no amount of money which is won by the insured. Insurance is simply meant to cover any loss which may be sustained as a result of something beyond man's control. Scholars have tended to view insurance with suspicion and many of them have over the years ruled that it is not compatible with Islam. Much of their argument is based on the fact that there is an element of uncertainty about what the insured buys with his premium. It is well known that when you buy something uncertain, the sale is not allowed from the Islamic point of view. In insurance you pay your premium and drive your car throughout the year and may have no accident whatsoever. You make no claim against the insurance company, thus your premium is gone without any material benefit to you. Hence the question: What have you bought with the money you have paid the insurance company? The absence of any tangible return makes this restrictive view by scholars even more pronounced. On the other hand, should you have a serious accident which causes extensive damage to your car and may be to the other vehicle, the insurance company pays the cost of repairing both vehicles and may compensate anyone who has suffered an injury as a result of the accident. What the insurance company pays in such a case is several times greater than the premium you have paid. In other words, you have paid little and received much in return. There is no loss to the company in this transaction because it uses the premiums of other insured persons who may have no accident in order to pay those who make claims as a result of their accidents. The situation is thus which involves taking money from those who sustain no loss in order to pay those who do. Again, this is a point which has tended to confirm scholars' suspicion of the insurance contract. When we examine the deal between an insured person and the insurance company, we find that when the insured pays his premium and receives the insurance policy, he actually gets something valuable in return, although he may not need to make any claim throughout the period of cover. What he gets is a peace of mind. He knows that should he ever be involved in an accident and should the accident be his fault and result in extensive damage to someone else's vehicle as well as his own, then he will not have to pay for the repairs which may run into a very large amount indeed. Someone else will take that responsibility, without actually incurring a loss in the process. Such peace of mind is of value and it is certainly tangible, although we may not hold it in our hands. The uncertainty which is pointed out by scholars about the benefits you receive for your premium is counter-balanced by the certainty that your liability in the case of an accident is very limited. [That is to say, the day you pay your premium, you have incurred a loss on that day with an assurance that you will not be burdened with any further loss through claims during the period.] As for taking money from people who make no claim and paying it to those who are involved in accidents, this involves no element of deception. Everyone comes to the insurance company of his own free will, buying something which he receives immediately, namely, peace of mind. No one pays his premium for nothing. Those who make no accidents are happy with the bargain and even happier than those who have accidents because a car that does not have body repairs remains better and fetches a better price when sold than the one which has had an accident. We can compare the insurance scheme to a cooperative in which the participants undertake to compensate any one of them for any loss he incurs in circumstances beyond his control. Each of them pays a certain amount of money toward funding this scheme and making this money available for such compensation. All scholars agree that when a group of people undertake to do that of their own accord, this is perfectly legitimate. What an insurance company adds to this agreement is the fact that it is a third party organizing this scheme. It offers it to any number of people who are willing to participate in it, keeping records of participants and claims, collecting premiums and using them for the purposes they have been collected for. The company pays its share-holders and its staff for the work they do. Moreover, it is in business for profit and the profit is shared by the company owners. Again, there is nothing wrong with this arrangement. To sum up, the car insurance is a proper method of protecting people against suffering a great loss in certain eventualities. It violates no Islamic teachings and as such it is perfectly permissible. There is nothing in the insurance contract that suggests that taking part in such a scheme defies Allah's will or predestination. It does not. It simply seeks to compensate people for the damage they suffer when Allah's will operates. Some scholars have advised their questioners to limit their car insurance to what the law of the country in which they live requires them to have. This is normally called a third party insurance which compensates any person other than you who incurs a loss as a result of an accident which you have caused. It does not give you or your car any cover. Thus if you cause an accident which results in damage to your car and someone else's car, the insurance company will not repair your car but will repair the other driver's car. He is the third party who is covered by this type of insurance. When scholars give such an opinion, they are simply telling people not to go against the law of their country of residence. However, there need be no such limitation. It is perfectly permissible for a Muslim to have a comprehensive insurance policy of his car.

Our Dialogue ( Source : Arab News - Jeddah )