Please provide the Islamic reasoning why home insurance is haram and if it applies to car insurance which is mandatory?
In the Name of Allah, the Most Gracious, the Most Merciful.
As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.
Home insurance is impermissible to use because it results in contractual uncertainty. The policy holder will only be rightful for a return in the case that an unpredictable event occurred, such as fire or theft. This amounts to gambling. Also, the amount of damage is impossible to quantify beforehand. This leads to a second problematic aspect, namely interest. The return that the insurance policy holder may get will rarely equal to the premiums he paid. This discrepancy between payment and return constitutes ribā-e-faḍl e.g. interest.
In the case of basic necessities of life where insurance is compulsory, it is permitted to opt for such an insurance. However, this is only to the extent of necessity. Thus, one is required to select the least expensive insurance available. This in spite of the clear lack of utility of the cheapest alternative. In the event of an accident, one may only make a claim to the extent one has paid.
For instance, Zaid paid two years worth of insurance premiums, amounting to a total of 3,000. If Zaid were to get into an accident that caused 2,500 worth of damage, then he can claim the full amount. In case that the damage caused was worth 3,500, then he may only claim 3,000. Anything claimed in excess has to be dispensed of in charity to the poor.
And Allah Ta’āla Knows Best
Student Darul Iftaa
Checked and Approved by,
Mufti Ebrahim Desai