All perfect praise be to Allah the Lord of the Worlds. May His peace and blessings be upon our Prophet Mohammad and upon all his family and companions.
Scholars of Sharia have differentiated between commercial insurance and Islamic insurance:
Commercial insurance is forbidden by agreement of the majority of scholars and the Fiqh academies, because it is based on gambling. This is attested to in the following verse: " O ye who believe! Intoxicants and gambling, (dedication of) stones, and (divination by) arrows, are an abomination,- of Satan’s handwork: eschew such (abomination), that ye may prosper." {Al-Mai`dah, 90}.
On the other hand, Islamic insurance, which is based on solidarity, cooperation and donation, is permissible. The evidence on this is that Allah the Almighty Says (What means), " Help ye one another in righteousness and piety, but help ye not one another in sin and rancour: fear Allah. for Allah is strict in punishment." {Al-Mai`dah, 2}.
Moreover, it isn`t permissible to participate in commercial insurance, but in case a person did sign such an insurance contract then he is entitled to the compensation paid by the insurance company. This is provided that the insured takes an amount equal to that which he had actually paid, and he should get rid of any extra amount by giving it to the poor and needy and the like.
Imam Ghazali (May Allah have mercy on him) said: "He should give the ill-gotten money to its owner in case he knows him. If he doesn`t, then he should dispose of it by giving it in charity. If the money was a mixture of what is lawful and what is unlawful, then he should do his best to determine the unlawful amount and give it in charity." {Ehya` Ulum al-Deen, Vol.4:P.37}. And Allah the Almighty knows best.
