First: Insurance in its modern form, as it is commonly practiced, is a contract of exchange, where one party provides the service of insurance and warranty, and the other party provides the payment or premium. Each party benefits from this arrangement: the insurer receives the premium in exchange for covering the insured item wholly or partially, and the insured person receives the benefit of compensation for any damages or losses incurred.

Therefore, the insurance contract is fundamentally valid, similar to other contracts of exchange, like selling a garment for a price, a house for a price, an animal for a price, or a service for a price. The principle in contracts is their validity and permissibility, as Allāh says: “O you who have believed, fulfill [all] contracts.” [Al-Mā᾽idah: 1], and “But Allāh has permitted trade (bay῾).” [Al-Baqarah: 275].

Second: There is no significant difference between a primary insurance contract and a secondary or subsidiary insurance contract, according to those who permit the insurance contract in principle.

For those who consider insurance contracts ḥarām due to the element of uncertainty (gharar), they might make an exception for subsidiary insurance based on the rule that “what is excused in the secondary is not excused in the primary,” or their saying: “something may be established implicitly but not explicitly,” or “what is excused in the subsidiaries is not excused in the primaries.”

This is because subsidiary matters may be less stringent in meeting certain conditions, as a condition that might be prohibitive in a primary situation may be acceptable when it is implicit or secondary to something else.

For instance, if someone dedicates a house to Allāh, and it contains movable items, it is permissible for these items to be included in the endowment as a subsidiary, even though endowments generally apply only to fixed assets like real estate. Similarly, the fetus of a slaughtered ḥalāl animal becomes permissible through the slaughter of its mother.

In reality, the exception here is an excessive compromise from those who prohibit insurance; because insurance on the subsidiary items is essentially a separate, voluntary contract that increases the value of the item by the type of insurance attached to it, it differs from the commonly understood warranty of a sale.

Third: Frequent exceptions to the principle of permissibility nullify the permissibility, just as frequent exceptions to prohibition nullify the prohibition. Broadening the scope of general needs for insurance undermines the basis relied upon by those who prohibit it; as frequent exceptions establish general need, which is treated as necessity. Without such exceptions, hardship and difficulty would arise, and the Sharī῾ah aims to alleviate hardship, as is well known. Thus, the only valid conclusion is to permit it, to avoid contradictions between the rulings and their objectives, as it is not rational for exceptions to override the default principle.

Fatwā issued by Dr. Khālid Naṣr