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 All the praises and thanks are due and belong to Allah and may His special salutations and benedictions be upon the final and seal of all Prophets and Messengers; the prophet Muhammad, his family and all companions.

Insurance companies operating in non-Muslim societies are either commercial companies or cooperative companies; hence, this article will uncover briefly the rule concerning dealing with these two types of insurance companies.

Firstly: cooperative insurance:

This type of insurance is based on mutual insurance among the participants and paid by every single one of them as a donation from him to this portfolio, which gets them compensation

Secondly: Commercial insurance

 It is the most common type of insurance popular  in non-Muslim countries, which in its current form, is capitalist in thought through insurance (profit making), as the insurance company makes insurance operations itself as the object of profit which goes to the benefit of the company while this difference in the cooperative insurance remains in subscriber account.

Cooperative insurance as seen above offers mutual support, and there is a hadeeth that supports it in principle. It was narrated that Abu Moosa (may Allah be pleased with him) said: The Prophet (blessings and peace of Allah be upon him) said: “If the Ash‘aris run short of provisions during a campaign, or they run short of food for their families in Madinah, they gather whatever they have in a single cloth and share it out equally amongst themselves. They belong to me and I belong to them.” Narrated by al-Bukhaari, 2486.

He included it in a chapter entitled: “Chapter on sharing food and other resources, and how to divide that which may be weighed or measured handful by handful (without weighing it or measuring it), because the Muslims did not see anything wrong with sharing out provisions when traveling so that one could come and have some, and another could come and have some…”. In the spirit of this hadith, Muslim scholars have permitted dealing with cooperative insurance companies. Some describe it as Islamic insurance.

As for the second type (commercial insurance), it is a kind of gambling; all contemporary fiqh(Jurists) councils are agreed that it is unlawful ( haram). 


The reason why cooperative insurance is permissible and commercial insurance is forbidden is the following essential differences: 

(a)  Traditional (commercial) insurance is a contract offering something in return for financial compensation; it is aimed at making a profit from the insurance itself, therefore it is subject to the same rulings as other financial transactions, whereby it may be affected by ambiguity. The ruling on traditional insurance is that it is haraam according to sharee‘ah. As for cooperative insurance, it is a commitment to donate and is not affected by ambiguity.

(b) The company that manages cooperative insurance is acting as an agent when drawing up the insurance contract. In contrast, the company is a main party in the case of commercial insurance and draws up contracts in its own name.

(c)  In the case of commercial insurance, the company has ownership of the payments made in return for the commitment to pay out money in the case of illness. In the case of the Islamic (cooperative) insurance company, it does not have ownership of these payments, because these payments become the property of the fund.

(d) Whatever is left of the payments and their returns – after payment of expenses and compensation – remains in the ownership of the policyholders, and this is the surplus, which is to be distributed to them. However, this is not possible in the case of commercial insurance, because the payments become the property of the company by virtue of the contract and receipt of the payments. In fact, that money is regarded as income and profit in the case of commercial insurance.

(e)  Returns on the investment of monthly subscriptions, after deducting a percentage of the profit for the company (which is investing the fund), go back to the policyholders in the case of Islamic insurance, and they go back to the company itself in the case of commercial insurance.

(f)   Islamic insurance is aimed at creating cooperation between different members of society; it is not aimed at making a profit by selling the insurance. In contrast, commercial insurance is aimed at making a profit from the insurance itself.

(g)  In the case of cooperative insurance, the company’s profits result from investing its money and its share of the profit in mudaarabah investments, because it is managing the funds and investments, and the fund itself is the owner of the wealth.

(h)  The one who subscribes and the one who is giving the insurance is the same in the case of Islamic insurance, even though they may be different in practical terms. In the case of commercial insurance, they are two completely different entities.

(i)    In the case of Islamic insurance, the company is bound by the rulings of sharee‘ah and the fatwas of its sharee‘ah committee. In the case of commercial insurance, it is not bound by the rulings of sharee‘ah. (

In conclusion, it can be well said based on the above-mentioned facts that, it is unlawful for Muslims living in non-Muslim countries to deal with commercial insurance companies. One can however deal with cooperative insurance.



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