The Lawful and Unlawful in regards Partnerships and Insurance

Just as it is lawful for the Muslim to give his wealth for investment in a joint venture, it is also lawful for him to pool his capital with the capital of others for investment, trade, or any lawful business ventures. By themselves individuals may not be able to accomplish much, but when joined with others, they can achieve many things. Allah says, “...and help each other in righteousness and God-consciousness.” (5:3 (2)) The Prophet said, Allah's hand is over two partners as long as one of them does not cheat the other, but when he cheats his partner, He withdraws it from both. (Reported by al- Darqutni.) "Allah's hand" refers to His help, inspiration, and blessing. The Prophet also stated in a hadith qudsi that Allah, says, “I make a third with two partners as long as one of them does not cheat the other, but when he cheats him I depart from them. (Reported by Abu Daoud.)

So what about Insurance So what about Insurance? Does this fall under the category of lawful partnership and trade? There are different types of insurance. Let's first look at insurance against hazards. This type of insurance is when the insured pays a specified premium during the year. If no accident of the type specified in the insurance policy occurs to the property during the year, the company keeps the premiums received and nothing is returned to the insured. If, on the other hand, some calamity occurs, the insured individual is paid the agreed-upon sum. This kind of transaction is far removed from either trade or partnership. Being so, it is only permissable if there is a pressing need for it as we discussed the other day

Another form of insurance is Life insurance A person takes out this insurance for certain amount such as twenty thousand dollars and dies soon after paying the first premium. His beneficiaries are then entitled to the entire sum of twenty thousand dollars. Had this been a business partnership, they would have been entitled only to the amount of the premium which was paid, plus the profit on it. If the insured person fails to pay his premiums after having paid a few of them, according to the terms of insurance contracts he will lose all or a great part of what he has already paid. Such a transaction is against the laws of Islam and should be avoided, unless it is included with your job because this is part of your income and you do not lose any of it

What about burial insurance? If this is included with your job there is nothing wrong with it because it is part of your income for it becomes like a life grant. The Prophet said: “He who conferred a life grant upon a person, it becomes his possession and that of his successors, for he surrendered his right in that by his declaration. (This property) now belongs to one to whom this lifelong grant has been made, and to his successors.” (Muslim) If one does not have this type of insurance through employment and he has no other means of paying to bury himself or family members, then this may enter into the category of “Pressing Need” as discussed previously and he may purchase it

What about Medical Insurance? This type of insurance is similar to Hazard insurance accept it involves your body instead of property. Again if it is included with your Job is it part of your income and nothing is wrong with it. If you do not have it through employment then again it can fall into the category of “Pressing Need” and in that case may be purchased.

Remember to meet the category of “Pressing Need” the following must be exist: The need must be real, not merely an extension of the scope of one's needs and the desire for luxury. It must be so basic that life is not possible without it, for example, food, clothing, and medical treatment. This concession is limited to the exact amount needed. Thus, for example, if nine dollars is sufficient, borrowing ten dollars is not lawful. The Person must continue to search for ways to escape from his predicament The person must continue to hate it and regret doing it until Allah opens a way out for him.

So thus it becomes clear that Insurance is not a partnership and does indeed go against the lawful business tactics in islam However we may find ourselves having a pressing need to indulge in it. In such cases we have to remember that Allah knows everyone's situation and only punishes us for the sins we intentionally commit. We must also understand as Muslims that although the modern form of insurance companies and their current practices are objectionable Islamically; this does not mean that Islam is against the concept of insurance itself; not in the least—it only opposes the means and methods. If other insurance practices are employed which do not conflict with Islamic forms of business transactions, Islam will welcome them.