Answered by Shaykh Muhammad ibn Adam al-Kawthari
When renting a vehicle from a car rental company, one has to pay a deposit of £250-£500 or even more depending on the car, but one is given an option to pay insurance of £8-£9 per day, instead of paying the deposit. Can one take this cheaper option of paying insurance instead of risking losing £500?
In the name of Allah, Most Compassionate, Most Merciful,
The reason why all forms of commercial insurances prevalent in modern trade are unlawful and against the principles of Shariah, is that they have either an element of interest (riba) or/and gambling (qimar), both of which have been explicitly and sternly forbidden by Allah Most High in the Qur’an.
Insurance is chancing [= relying on or inviting the risks of chance’ Merriam-Webster’s Unlimited Dictionary] in the sense that the premiums are paid for certain, where as the return is uncertain. You may loose all the premiums you paid or may receive in return more then what you paid. This is known as chancing or gambling. There is also an element of interest here, as money is being exchanged for money and one party pays less and receives more in return.
Now, in the case of paying insurance for the rental of car, one needs to determine whether chancing or interest is involved. If not, then it would be permissible to pay this type of (so called) insurance.
If the insurance per day is paid and nothing is gained in return, then there is not an element of Riba here, as Riba constitutes paying an amount and receiving/giving more. It would be just regarded as an additional payment of rental. However, it could be said that in case of damage to the car, one is liable to pay the company for the damages, and the cost for these damages may be more then the actual amount paid, thus be included in the definition of Riba.
The same is with chancing, as the insurance is paid for certain whereas there is no return, thus the transaction should not fall within the definition of chancing. But here also, the cost of damages to the car could be taken into account.
Therefore, the best way to avail from this type of insurance is that one stipulates in agreement with the company that the insurance paid be included in the rental fee for the car, and any damages to the car is considered to be excused. In this way, it seems that this type of insurance (where the car is in sole ownership of the company) be permissible.
And Allah knows best
Muhammad ibn Adam al-Kawthari, UK