Question:
It is said that medical and vehicle insurance may be permissible because the insured does not receive a direct financial return or profit, whereas life insurance is considered impermissible.
Is the above understanding correct according to Islamic principles? Additionally, is it permissible to work as an insurance agent under conventional insurance companies?
Answer:
All types of insurance, except life insurance, are considered permissible. The difference is that in most insurance types, you pay money but do not receive guaranteed returns. Returns that include interest make an insurance policy impermissible.
In life insurance, the money paid includes interest, and the amount is returned with additional benefits after maturity. The premium paid in life insurance is returned with added interest or bonuses, which are considered indirect interest.
Medical insurance, however, works differently. If a person falls sick, the insurance company pays for medical expenses or hospital bills. Medical insurance is permissible because you pay money, and if illness occurs, the company pays the hospital expenses. If no illness occurs, the money is retained by the company.
Similarly, vehicle insurance pays compensation only if accidents or damage occur. The insurance company will compensate, repair, or replace the vehicle. If nothing happens during the insured period, the premium paid is not returned. There is no guaranteed return with interest; therefore, there is no expectation of financial gain.
There are other types of insurance that are considered necessary. For example, business insurance. If a shop is damaged due to riots, floods, storms, or other disasters, insurance helps cover the losses. Many people do not take such insurance, but when disasters like floods occur, they suffer heavy losses.
Business or property insurance protects against losses. If a business is insured for a certain amount, the company compensates that amount if damage occurs. If no damage occurs, the premium expires. This is allowed because it is service-based protection.
For example, if you insure your business for 10 lakh rupees, you only need to pay a small premium amount, either monthly or yearly. If no damage occurs during that year, you must renew the insurance for the next year by paying the premium again. The payment is for the service and protection provided.
Therefore, all types of insurance provide protection from losses and require payment within a stipulated time. There is no indirect form of interest, such as bonuses, involved.
However, life insurance differs. It includes returning your payments with added interest or bonuses upon maturity, which is considered interest (riba). People pay premiums for many years, such as 20 or 25 years. If the insured person dies during that period, the company gives a large amount, such as 50 lakh rupees, to the family. If the person survives until maturity, the company returns the invested amount along with bonuses or interest.
That is why life insurance is considered impermissible. Life insurance accumulates payments and eventually returns them with interest or bonuses. Since it includes interest, it is not allowed.
At the same time, people can work as insurance agents. An agent can work in insurance types that are permitted, such as medical insurance, car insurance, vehicle insurance, agricultural insurance, livestock insurance, and similar policies. These types of insurance provide protection without investment returns.
When advising against life insurance, it also means one should not promote or sell it as an agent. However, being an agent for other types of insurance is acceptable.
Many people suffer huge losses because they do not obtain insurance. For example, during floods in Sri Lanka, many people were uninsured and lost their property. If they had insurance, they would have received compensation.
Medical insurance is also very helpful. Without insurance, medical treatment can become very expensive. Having insurance provides easier access to private medical care. Therefore, choosing the right insurance company and obtaining suitable insurance coverage is important.
Working as an agent and helping people obtain permitted insurance policies can be a good service, as it helps protect people from unexpected financial losses.
Helping people secure insurance protection is considered beneficial. Therefore, acting as an agent for permissible insurance types is allowed.