Many different opinions among scholars about insurance whether it is allowed or not in Islam. As in insurance operation there is an element of uncertainty, usury, and loss for either party (company or customers). Customers only pay their premiums on a regular basis but if they do not have an accident, loss, damage, illness, and so on the money will not be returned. Most scholars say this conventional insurance is not allowed in Islam.
So is there any insurance allowed for Muslims?
Takaful or Islamic/Shariah insurance is set to pave the way for Muslims’ hesitation who wants to protect themselves and their families if disaster happened to them.
In takaful, the company becomes a depository for funds (premiums) paid by customers. Insurance company then manage the fund, so if there are customer members who died, accident, illness thus no longer able to earn a living for his/her family, then the insurance company will pay the affected customers or heirs. Therefore, the insurance company does not own customer funds, but it acts as a fund manager. Premiums do not become assets of the company; premiums remain the property of their customers. While in conventional insurance company, premiums paid by their customers will be counted as their assets. In takaful, there is a wealth of separation between participants and the company.
Basic principle of takaful is to protect and help each other. The agreement is a voluntary agreement (tabarru /charity customers in the initial agreement) for helping each customer members. Takaful in its operation is supervised by Shariah board. Takaful customers are assured from gharar or uncertainty, maisyir or gambling. There is no calamity, no profit or loss between both parties. In conventional insurance, company may not afford to pay compensation to customers if it passes a predetermined size limit for the company. The company gets loss in this case, but customers do not care. Similar to this, if there is no claim from customers then conventional insurance will get benefit from premiums paid. So the rich getting richer and the poor getting poorer. Therefore conventional insurance is based on business profit. While in takaful, all customers help in performing compensation that must be paid and the compensation payment is in accordance with funds collected from its members.
In addition, customers of takaful are freed from usury. All customer funds collected will be deposited in Islamic banks, so will be free from non shariah business and usury, while usury is not permitted in the Qur’an and other heavenly books.
Those who eat Riba (usury) will not stand (on the Day of Resurrection) except like the standing of a person beaten by Shaitan (Satan) leading him to insanity. That is because they say: “Trading is only like Riba (usury),” whereas Allah has permitted trading and forbidden Riba (usury). So whosoever receives an admonition from his Lord and stops eating Riba (usury) shall not be punished for the past; his case is for Allah (to judge); but whoever returns [to Riba (usury)], such are the dwellers of the Fire – they will abide therein. (QS: Al-Baqarah 275)