Why conventional insurance not accepted by Syari'ah

Why conventional insurance not accepted by Syari'ah

Assalamualaikum warahmatullah the present approach to risk mitigation is to buy an insurance policy whereby the insured will transfer his risk to the insurance company which, exchange for a premium, accepts the responsibility of indemnifying the insured in case the risk insured for materialists. There are three elements involve in conventional insurance, contradict in Islamic principles.  

Riba (usury or interest)
Riba is evident in conventional life policies in two situation. Firstly, the amount of money received by the insured, either on the occurrence of the insured even or upon maturity of the policy, is mostly in excess of total premiums he has actually paid. What the company actually pays more may be more, less or equal to that which paid by the insured and equality is very unlikely. Since the payment are differed, the compensation which is greater than installment paid by insured constitutes surplus Riba (riba al-fald) and credit Riba (riba al-nasiah).
Secondly, riba is still present in the compensation  by the insurance company since the profit of the letter are accumulated through riba-related transaction like fixed income and interest based transaction.

Gharar (Unknown or uncertain factors)
Professor Al-Zarqa defines gharar as a sale of probable items whose existence or characteristics are not certain due to the risky nature that makes it similar to gambling. This prohibition is based on an authentic hadith of the Prophet (peace be upon him) narrated by Muslim, abu Dawud, Al- Tirmidhi, Al-Nasa'i and ibn Majah, where by Prophet has forbidden gharar sales. The elements of gharar exist in both life and general insurance policies, whereby the subject matter of the contract or ma'quq alayhi' is not certain until the insured even has take place. Moreover, the amounts being paid by the two parties are not known during the contract session.

Mysir (gambling)
Islam is prohibits all kinds of gambling and games of chance based on clear text in the Qur'an :

       " O you who believe! Intoxicants (all kinds of alcoholic drinks), and gambling ,and animals
          that are sacrificed in the name of idols, and arrows thrown for seeking luck or decision are
          an abomination of Satan's hard work. So avoid that (abomination) in order that you may
          be successful. "
                                                                                                                               ( Al-Quran, 5:90)

The nature of insurance is said to contain an element of maysir because the policyholders are held to be betting premium on the condition that the insurer will make payment  (indemnity) contingent upon the circumstance of a specified event. On the other hand, the insured does not get anything from his premium if the insured event does not happen at all.

As a conclusion, we should choose Takaful system as a protection for us based on the concept and Islamic principles that was practice in addition to get the blessing from ALLAH s.w.t.


                                                                                                                         Prepared by : Ain ahmad