Is private life insurance permissible?

Details of the Question
What is the Islamic perspective of life insurance in Islam? Some say it is haraam as it has the element or riba and/or a guaranteed some of money once the plan reaches maturity, others say it isn't and is a useful method of securing your future.
The Answer

Dear Brother / Sister,

There are many aspects of the insurance. It is impossible to mention all of them here. Insurance is divided into three groups, these are; compulsory or social insurance, private business insurance and solidarity insurance (mutual insurance, indemnity insurance). Since the third one is completely an organization of help and solidarity, it is permissible and nearly everybody is unanimous in this. Having the purpose of providing help and solidarity among the citizens in order to share the risks of life between each other, the first one too, is actually same with the third one. The only difference between them is that the first one is compulsory. 

The insurance, which is argued about, is the second, which is private business insurance. Actually, having no difference in terms of operation, such insurances have two unfavorable aspects. The first is; because of the amount of money that the insurance companies are suppose to tie up in a bank, generally they are subsidiary companies of a bank and they get interest from the collected amount of money. And the second is charging interest to the some kinds of life insurances. Apart from that, the difference between these type of insurances and social insurances is only that social insurances are organized by government but these are organized by private sectors. And this doesn’t change the judgment. The first unfavorable case of these two doesn’t break the contract, since it is out of the terms of the contract. It is something like that for example a grocer –that you trade with- makes use of money in an ill-gotten way. Such a contract isn’t forbidden but since it indirectly sustains undeserved earnings, it is not unobjectionable. Allah Almighty decrees; “Help each other by fairness and piety (taqwa), but not by enmity and sin”. Therefore, if there are insurance companies which don’t include such kind of objections, we should work together with them, but if there aren’t, it can not be permissible.    
But the second objection is directly interest and such a contract is completely forbidden itself. The insured person pays the premium for a length of time and pays it back with its real interest rate later. Certainly this is usury. 

In conclusion, if there is an opportunity that removes such objections, then claiming that it is forbidden will have no grounds (Faruk Başer).

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