Is health insurance allowed in Islam?

Islamic Insurance - Takaful

One possibility that risk one Loss Insurance is to reduce due to accidents in the modern economy. The concept of insurance in which funds are available support of the needy is broadly in line with Islamic principles.

In the following blog, however, we will list some important aspects that distinguish Islamic from conventional insurance.

Not only financial instruments such as investments or financing have to be adapted in accordance with Islam, but also insurance. The version of a Islamic insurance is called Takaful designated.

Features of an Islamic compliant insurance:

Takaful can in terms of terminology as a Solidarity community of the members or as a kind of cooperative principle. Members participate in both profits and losses. The core of the takaful principle is the honest intention and sincerity of the contractors.

The conventional insurance structures are not in conformity with Islam for various reasons, which we will list later, or an adjustment is essential in order to ensure conformity with Islam.

Both the specific use of the premiums paid and the use of surpluses are according to the Islamic Finance Rules to execute.

The following core elements bring the takaful into line with Islamic finance:

    • Joint risk sharing to protect members
    • Adoption of a donation or foundation concept to eliminate speculative transactions on uncertain events (Gharar) when taking out insurance
    • Avoidance of interest rate transactions (Riba) and avoidance of the use of insurance transactions as a kind of game of chance or making unfair profits (Maysir)
    • Clear separation of functions between member and insurance company
    • Differentiation of funds between shareholders and policyholders
    • Compensation of actuarial surpluses to the members of the community of insured persons
    • Compliance with all transactions and investment requirements when investing insurance funds in accordance with Islamic Finance standards

The structuring von Takaful can build on various Islamic finance models. Two of these models are of particular importance in practice and are presented below:

I. Islam-compliant insurance according to Mudaraba

The strict separation between insurance company and policyholder applies particularly to the Mudaraba procedure. In the takaful sector, the policyholders are the capital providers and the insurance company is the operator and administrator, more precisely, the company is responsible for collecting contributions, managing the company, drafting and executing insurance contracts and paying insurance claims. With regard to the profits achieved, a corresponding relationship is agreed between the parties in advance.

II. Islamic insurance according to Wakala

To a certain extent, the Wakala model works like an agency contract. In fact, the insurance company receives a fixed remuneration for its work. The so-called Wakala fee is deducted from the insurance premiums paid. Other income or surpluses, in turn, are to be distributed to the policyholders.

The difference to conventional insurance

Conventional insurance includes various components that are forbidden in Islamic law. Thus, in their available form, they are not in conformity with Islam and consequently no Alternative. The Commission of Islamic Scholars divides this issue into three main elements:


Uncertainty | Speculation (Gharar)

A traditional insurance contract is basically an exchange, i.e. a buy and sell transaction. The policy (compensation) represents the goods that are sold to the policyholder and the policyholder's premium is the price or consideration for these goods. From the perspective of Islamic finance, conventional insurance contains elements of Gharar (Uncertainty and speculation). Gharar arises from the fact that at the beginning of the contract period it is not certain whether and if so, when and to what extent damage will occur. There won't be a new one here risk created, but an already existing risk is reduced or eliminated. If damage does not occur, the insurance company wins the amount paid by the insured. This fact therefore brings with it a factor of uncertainty with regard to the subject of the insurance contract and is not allowed in Islamic finance.

Gambling (Maysir)

The second component of conventional insurance that goes against the Islamic Finance criteria is the betting character. The insurers hope that certain circumstances (claims) will not arise and so others Profits for the insurer. If the insured damage does not occur, the policyholder loses the premium payment. On the other hand, the insurance company points out Deficits / losses if the claim is higher than the premiums paid by the policyholder. Which, however, means increasing the contributions for the future periods.

Interest (Riba)

The ban on interest is central in Islamic Finance. All contracts and transactions must be free of interest elements.

A conventional insurance company, however, invests a large part of the premiums it receives in interest-bearing securities or accounts.

Consequentially, conventional offers do not represent a suitable solution for principle-oriented interested parties.

Islamic finance only contradicts the functioning of conventional insurance, but not the security and precautionary idea and the mutual support in difficult times and strokes of fate. It also does not violate precautionary measures to ward off possible dangers and risks. The Islamic sources even primarily claim that prevention to hedge against risks.

When asked by a Bedouin whether he should tie up his camel or trust in God, the Prophet Muhammad replied with the well-known statement: "Tie it up and trust in Allah." (Sunan At Tirmidhi # 2517, hasan).

You can find more information about Takaful and current offers here: Family Takaful