Question
What is the ruling on purchasing full (comprehensive) insurance in Islam?
Answer
Alhamdulillah, wassalatu wassalamu ‘ala rasoolillah, wa ‘ala alihi wa sahbihi ajma‘in.
Insurance is a modern financial product that did not exist in classical fiqh, so the scholars have had to analyze it according to the principles of Shariah. Full or “comprehensive” insurance covers not only liability but also damage to one’s own property, theft, and other risks. While at face value it provides security, the Shariah looks not only at the benefit but also at the contractual structure that underpins it.
The main issues identified are:
- Exchange of money for an uncertain return: The policyholder pays premiums but may receive nothing if no claim is made, or may receive a very large payout if disaster strikes. This imbalance is the core of gharar fahish (excessive uncertainty).
- Element of gambling (maysir): The policyholder is essentially wagering on whether or not the insured event occurs, and the company profits when claims are low and loses when they are high.
- Riba: Insurance companies usually invest the collected premiums in interest-bearing instruments, and some contracts stipulate late payment penalties involving interest.
Because of these elements, the International Islamic Fiqh Academy (OIC) resolved in its 2nd session (1985, Jeddah) that commercial insurance in its conventional form is prohibited, and that the permissible alternative is takaful (cooperative insurance), which is structured on mutual risk-sharing and donations rather than sale of risk.
The Question of Necessity
- If the law in a country requires only third-party liability (one-way) insurance, then it is not permissible to go beyond that into full insurance unless one faces an exceptional situation of necessity.
- Full insurance becomes tolerated in cases where:
- The government itself legislates full insurance as a legal requirement for certain vehicles or under specific circumstances.
- A lien exists on the vehicle or property — for example, when it is leased, financed, or mortgaged — and the contract obligates comprehensive coverage until the lien is cleared.
- The vehicle is the family’s sole means of livelihood and sustenance, and losing it without protection would cause severe hardship or disaster.
- Outside these situations of necessity, taking on full insurance remains impermissible, and one should restrict themselves to what the law requires (such as third-party liability).
Final Ruling
Comprehensive insurance in its conventional form is haram due to its contractual structure. It is only tolerated when mandated by the government, when a lien obligates it (leasing/financing), or when the absence of such coverage would cause genuine hardship. Otherwise, one must avoid it and suffice with the minimum coverage required by law. The permissible alternative remains takaful, wherever available.
And Allah knows best.