In the name of Allah, Most Compassionate, Most Merciful,
What the Imam in your local Masjid said is correct in that Insurance is unlawful (haram) according to Shari’ah.
The reason why all forms of commercial insurances prevalent in
modern trade are unlawful and against the principles of Shari’ah, is
that they have either an element of interest (riba) or chancing
(qimar), both of which have been explicitly and sternly forbidden by
Allah Most High in the Qur’an:
“Those who swallow usury cannot rise up save as he ariseth whom the
devil hath prostrated by (his) touch. That is because they say: Trade
is just like usury; whereas Allah permitteth trading and forbiddeth
usury. He unto whom an admonition from his Lord cometh, and (he)
refraineth (in obedience thereto), he shall keep (the profits of) that
which is past, and his affair (henceforth) is with Allah. As for him
who returneth (to usury) - Such are rightful owners of the Fire. They
will abide therein.
Allah hath blighted usury and made almsgiving fruitful. Allah loveth not the impious and guilty.
Lo! those who believe and do good works and establish worship and
pay the poor-due, their reward is with their Lord and there shall no
fear come upon them neither shall they grieve.
002.278 O ye who believe! Observe your duty to Allah, and give up
what remaineth (due to you) from usury, if ye are (in truth) believers.
And if ye do not, then be warned of war (against you) from Allah and
His messenger. And if ye repent, then ye have your principal (without
interest). Wrong not, and ye shall not be wronged.” [Qur’an, 2.275-279]
And, regarding chancing and gambling (qimar):
“They question thee about strong drink and chancing. Say: In both is
great sin, and (some) utility for men; but the sin of them is greater
than their usefulness. And they ask thee what they ought to spend. Say:
that which is superfluous. Thus Allah maketh plain to you (His)
revelations, that haply ye may reflect.” [Qur’an, 2.219]
“O ye who believe! Strong drink and chancing and idols and divining
arrows are only an infamy of Satan's handiwork. Leave it aside in order
that ye may succeed.” [Qur’an, 5.90]
The Ruling Regarding Prevalent Forms of Insurance
Insurance is chancing [= ‘relying on or inviting the risks of
chance’ – Merriam-Webster’s Unlimited Dictionary] in the sense that the
premiums are paid for certain, where as the return is uncertain. You
may loose all the premiums you paid or may receive in return more then
what you paid. This is known as chancing. There is also interest as
money is being exchanged here for money and one party pays less and
receives more in return.
This is the reason why the great contemporary scholars from all over
the world have declared all types of prevalent insurances unlawful
(haram), unless when one is compelled to effect it by the Government.
The Islamic Fiqh Academy (Jeddah), and which consists of top
recognized scholars from around the globe researched the issue in
considerable depth. The meeting was attended by no less than 150 such
scholars from 45 Islamic Countries, including my respected teacher
Shaykh Mufti Muhammad Taqi Usmani (may Allah preserve him), and they
unanimously declared all types of prevalent insurances to be unlawful.
How About Car Insurance?
However, it should be remarked here, that since third party car
insurance is a mandatory legal requirement for every car-owner, one can
affect this kind of insurance, as it is not possible for one to avoid
Is There An Alternative?
Islamic financial institutions offer a viable and
Islamically-accepted alternative, which is takaful, a form of
cooperative insurance. Details of this are available through such
And Allah knows best
Muhammad ibn Adam al-Kawthari