ILLUSION OF INSURANCE AND THE SOLUTION
Attractive propaganda and colourful advertising have made many people believe that insurance is all-good. However, the benefits of insurance are outnumbered by a great many minuses.
Advantages Of Insurance
1 – Raising Capital
The best way to raise capital is to invest your money in an insurance system. Insurance has become a part of all kinds of business, be it insurance against life, against private property, against funds, against rights or even against aspirations and dreams. Individuals and governments in modern times assign a big portion of their annual budgets to insurance cost so much so that lack of insurance (because of its large cost) can cause enterprises to shutdown. This is because insurance experts are constantly adding new risks and hazards to the already long list of dangers deserving insurance and thus, the budget assigned to these particular items is increasing day after day. Consequently, huge amounts of money find their way to insurance companies.
2 – Maintaining Production Elements
If a factory goes on fire, blows up or collapses; and if a worker falls ill, becomes handicapped or dies and there is no insurance against any of these misfortunes, production elements including physical plant facilities and man power may weaken or cease altogether. Insurance experts believe that investing in their various system is likely to prevent these grave consequences since insurance policies make up for damage and loss of machinery as well as manpower. A devastated factory can be rebuilt, damaged machinery replaced, ill workers treated, the handicapped rehabilitated, and a good sum of money given to the deceased-person family.
3 – Protecting Against Dangers
Insurance companies want their clients to avoid misfortunes and/or disasters or else they will be obliged to pay the insurance money stated in the contract. Therefore, they keep urging their clients to take the strictest measures possible in order to avoid being exposed to hazards. By doing so the money and assets being insured are usually watched closely and thus maintained safely most of the time. This leads to the enforcement of the power of the economy.
4 – Security & Peace Of Mind
It is often maintained that insurance is synonymous with security and peace of mind. Factory owners are sure of their success and promotion, capitalists are sure of profitable investments, whole-dealers as well as retailers are sure of safe deliveries of their own goods. The same applies to businessmen, employees and workers, they all work in an atmosphere of serenity because they feel that their interests are insured.
Disadvantages Of Insurance
Careful examination of insurance will reveal many disadvantages, the most important of which are:
1 – Caught In Forbidden Deeds
Nothing can be more harmful than committing a deed that is contradictory to what has been decreed by Allah and His Messenger, sallallahu alayhe wa sallam. The effect of committing a sin of that type knows no bounds, good fortune and prosperity are uprooted in this world, humiliation and torture in the hereafter. And since insurance is based on unlawful principles a will be shown next, it is haram to deal in.
2 – Economic Loss
A considerable amount of money goes into insurance funds worldwide. This means that within a society the majority are losers and the minority are winners. Such a tendency is not practically justified since fortunes are thus wasted without tangible benefits. The exceptions to this widespread phenomenon constitute a meagre figure that can hardly be compared to the number of people holding insurance policies. This can be clarified by the following equation: The sum paid by those holding insurance policies equals the profits of the company plus administrative cost plus the refund paid to those affected. The loss brought about by insurance is now obvious because it is well known that the profits made by insurance companies are among the highest in the world of business. The administrative costs are even higher since they include the generous bonuses granted to directors, commissioners and officials in charges as well as those agents whose job is to write tailored reports on the incidents being investigated.
3 – Loss Of Revenue
As far as insurance is concerned. Countries of the world are divided into two categories: export-oriented and import-oriented. The winner side is the exporting countries. These take the most and return the least. The reference here is to those big countries that own the renowned insurance companies all over the world whose budgets are like a spider net, which entangles the interests of the poor countries.
4 – Destruction Of Properties and Fraud
Very often some of those holding insurance policies deliberately destroy the properties insured against in order to get money, especially when the market is in a state of depression. And because such fraudulent accidents are common, insurance companies conduct very tough investigations to make sure that they are not deliberately contrived.
5 – Fortunes Only For The Few
When fortunes seep through into the pockets of a few persons or agencies, evil prevails and negative consequences become a phenomenon. As a result, discrimination according to social classes is inevitable because people from the upper class will have full authority, over the frustrated sectors of the community they live in. Personal interests are then the criteria that steer the entire nation. For this reason, Islam has forbidden the notion of fortunes being heaped up in the hands of a minority; and insurance in an obvious example of such a case.
6 – Scaring People
One of the strongest motives behind enrolling in one form or another of insurance is the instinctive fear from the future. Insurance companies tend to make an optimal use of that instinct, amplifying it to the extent that it becomes a daily obsession. Besides, they draw a picture of themselves as the only refuge people can take to protect against likely perils. Thus, people lose confidence in themselves, an evil sentiment that can never be encouraged by reason; and that is why it is considered against religion.
7 – Inability To Face Challenges Of Life
When people eventually develop a tendency to shake responsibility off themselves, they lose the ability to face the slightest dangers. They became so feeble that only a causal surprise can disturb them. And life has no taste when it turns void of challenges since the sense of triumph is likely to be lost. This is even truer in this age when life has developed into an intricate system of mutual interests governed most of the time by evil intentions.
8 – Loss Of Social Ties
Social intercourse is inevitable, especially during hard times when people experience a disaster. Therefore, people have been living in communities based on co-operation since they existed on earth. Relief efforts have always been a necessity. Integration among members of the same community creates intimacy. Nevertheless, insurance has blurred the image; integration was replaced once and for all by disintegration, thus destroying the structure of the nucleus family as well as the community. People have become isolated, each looking after his own interests.
THE ISLAMIC RULE CONCERNING INSURANCE
Our belief as Muslims is that in this world everything happens according to the Will of Allah. Therefore, any accident or misfortune that befalls us, is by the will of Allah, subhanahu wa ta’ala.This belief however should not be construed to mean that people should not plan or do whatever they can to take care of responsibilities and provide for their needs. “Leaving it to Allah” as some may say, does not mean we should not be prepared. We do not know the future but we should plan for it. What is extremely important for us to know is that whatever planning and preparation we do has to be done according to Shari’ah. And Shari’ah has taught that while we should accept whatever “misfortune” that befalls us, we are also required to avoid or reduce the possibility and/or the effects of these “misfortunes” by taking positive steps.
Anas ibn Malik reported that one day a Bedouin came to the Prophet, sallallahu alayhe wa sallam, on a camel and asked him: “Can I leave the camel alone [without tying it down] and trust in Allah?” The Prophet, sallallahu alayhe wa sallam, said: “Tie your camel first, then put your trust in Allah.” (Termithi) Here, we saw that the Prophet, sallallahu alayhe wa sallam, has taught the man to reduce the risk of losing his camel. Imam Ibn Rajab said:
|“You should know that having your trust in Allah does not mean abstaining from taking the necessary measures to take care of something. This is the Sunnah of Allah and His Law in this life. So using the means available to us is being obedient to Him and having trust in Allah is having faith in Him.”|
Similarly in many actions of the Prophet, sallallahu alayhe wa sallam, one can see that whenever possible he took the necessary steps to reduce risks although he could have done otherwise if he wanted to. For example, during the Hijrah, he went to hide in the cave first instead of going straight to Madinah. He commanded the companions to migrate to Madinah by batches instead of in one big group. Again this is to reduce risks. When he went to war, he put on his armor on instead of wearing his normal clothes.
In this modern world, one of the ways that can be done to reduce the risk of loss due to accident or misfortune is through insurance. But what type of insurance is permissible for the Muslim to use?
1 – Commercial Insurance
As mentioned before the insurance contract is a “new” type of financial dealing that was developed in the absence of a Shari’ah guidelines and for this reason it is only natural for it to be un-Islamic. Recently, however, insurance has been the subject of discussion and research by scholars. The conclusion of their majority is that insurance is prohibited or Haram. Since the Malaysian National Fatwa Council decreed that insurance is a unlawful or Fasid practice in 1972, many other council meetings and conferences have taken place in Libya (1973), in Makkah (1976 and 1977) and more recently in 1985. Furthermore, many scholars have published their own treatises and fatawa on the subject in various capacities. All of these studies prohibit the involvement in the current version of the commercial insurance because it contains the elements of Gharar, Maisir and Riba.
According to scholars, gharar is defined as deception through ignorance by one or more parties to a contract. Also, it is defined as a contract where the results are not known or hidden, or one of two possibilities where the frequent occurrence is the one that is more feared. Therefore, every contract of an open-ended nature contains some element of gharar. And the insurance contract is one of exchange whereby the insured pays a premium and the insurer provides compensation, but it is not known, at the time of consent for the contract, how much either side will eventually have to pay to the other, and therefore, the element of gharar is present which voids the validity of the contract. The Qur’an says:
|“O who you believe, do not eat property among you in a false way, except through trade by mutual consent.” [4:29]|
Maisir is a form of gambling. It is about getting something for nothing, or receiving profit without working for it. The Prophet, sallallahu alayhe wa sal-lam, prohibited all forms of business dealings where monetary gains come from chance and speculation, and not from work. Simplistically, The insurance contract is equated with gambling where if the danger happened, the insurer will lose. On the other hand, if the danger does not occur, the insured will lose. Today, the insurance company is the winner in most of the cases. Insurance companies rely heavily on statistics and past experiences to determine the cost to insure an unknown risk while making large profits.
One of the obvious forms of dealing in riba is the giving or receiving of interest. It is generally agreed upon, amongst scholars, that interest whether on principal or late payment is riba. Another form of riba is the exchange of “elements of riba” where there is a difference in time and/or quantity. A main type of the elements of riba mentioned by the Prophet, sallallahu alayhe wa sallam, are gold for gold, silver for silver. By making an analogy, money is similar to gold and silver where it is a medium of exchange. Therefore, money is an element of riba and in the contract of exchange between the insurer and the insured there is difference both in quantity and amount. Thus, one can easily see that both types of riba exist in the commercial insurance. It actually is dependent on riba for its profits. Riba is present in all stages of the business, from the calculation of premiums to the payment of indemnity to the insured who has suffered a loss. Furthermore, the scholars argued that insurance companies give out loans and charge interest and this is Riba. Also, Most of a conventional insurance company’s funds that are collected in premiums are invested in fixed income (interest-baring) securities such as bonds and US Treasuries, only a small portion of its funds are invested in other areas. Since safety and the welfare of its clients/shareholders are the company’s main concerns, it invests in these types of securities because it considers them “risk-free”.
These are the main issues that made commercial insurance to be haram for the Muslim to get involved in. However, it should be noted that the scholars have also stated certain conditions under which one may be allowed to buy insurance. A state of Dharoorah or necessity is one such case. It is highly recommended that one consult with a scholar before committing to buying insurance for “allowed situations” and “Allowable conditions” can only be determined with qualified scholars.
2 – Cooperative Insurance
Now that we saw that insurance is haram, what can be done about it? What should Muslims do to plan and be prepared for dangers that may happen in the future? Is there such a thing as insurance that conforms to Shari’ah?
One solution many scholars have mentioned repeatedly was the suggestion that the principle of Takaful be the basis of “Islamic” insurance. It is know called the cooperative insurance or takaful. Takaful comes from the word Kafala meaning guarantee. It also, means Ta’awon or mutual assistance. So Takaful means mutual guarantee, assistance and protection.
Under this principle, the participants to the plan would give their money to the company on the basis of donation or Tabarru’ with the stipulation that the company would compensate them with an amount should they be struck by an accident for example. They further stipulated that the company must not be involved in haram activities like riba, gambling, liquor and the like.
One main difference between modern commercial insurance and cooperative, takaful, insurance is that in conventional insurance, losses are estimated in advance and are not shared by its members. In takaful, losses are not estimated in advance and are shared by the members when they happen. In other words, individual members are the insurers as well as the insured.
It is a collective, community-based organization designed to eliminate the burden of individual losses by mutually sharing the risk. No risk is transferred from one to another and there is no exploitation, or enrichment of one person at the expense of another. If some of the money is invested for profit-making, all profits and losses are equally shared by the members.
IN TAKAFUL, NO GHARAR, MAISIR OR RIBA ARE INVOLVED
Even though some Muslim companies have been experimenting with the takafol concept for about two decades now, they are not well known amongst Muslims. Many of these companies are available through the internet and we suggest that they be checked out. Muslims have a very good chance through takafol in meeting their needs and providing alternatives to a system that is inherently unfair.
By a Teacher at the Imam University – Qaseem Branch
Taken from al-Jumuah Magazine, volume 11, issue 12, Insurance-The illusion of security
Article has been edited&shortened from the original version.