Is Car Insurance Legal or illegal? - Complete Islamic Guide

If you are looking for a complete Islamic guide on whether car insurance is haram or halal in Islam – you have come to the right place.

You will get all your answers with evidence supported by the Qur'an and Sunnah.

Bismillah

Is Car Insurance Haram or Halal in Islam? - Read This First!

As a general rule, having car insurance is haram (not halal) in Islam because it violates Sharia law. However, if it becomes a legal requirement in your country to have car insurance for driving, then car insurance is halal for you because the obligation of a Muslim is to be a law-abiding citizen.

For example, in the UK, driving without at least having third party liability car insurance is illegal. Therefore, it has become mandatory for drivers in the UK to take out a car insurance policy in order to remain in compliance with the law. Therefore, some scholars allow third party liability car insurance policies to be halal (permissible). They do so with reference to the Islamic principle of dharoorah (necessity).

Traditionally, all four schools regard the concept of conventional insurance as haram, be it the Hanafi, Shafi'i, Maliki, and Hanbali schools.

But as it became mandatory in some countries like the UK to have third party insurance, the scholars have issued a fatwa that out of necessity (dharoorah), it is permissible for Muslims in the UK to take out a third party car insurance policy. But not a comprehensive insurance policy.

Note: there is a difference of opinion on this matter. Some scholars argue that if there is public transportation available, then not having a car may be difficult but not a necessity. Therefore, the principle of dharoorah (necessity) cannot be applied here, unless your job is to drive vehicles such as taxis or trucks. Therefore, they prohibit conventional car insurance in its entirety, including third-party car insurance.

There is also an Islamic option of cooperative takaful Insurance, which is halal.

What If Third Party Insurance Is More Expensive Than Comprehensive Insurance?

Third party insurance can sometimes be more expensive than comprehensive insurance. This is because insurance companies calculate insurance premiums based on risk.

If an insurance company's algorithm predicts that someone who only takes out third-party insurance is more risky than someone who takes out comprehensive insurance, then the third-party insurance premium will be more expensive than comprehensive insurance.

In this regard, some scholars say that you can take out cheaper comprehensive insurance. So you avoid paying more for conventional haram insurance. But this fatwa is accompanied by major exceptions:

If you are involved in an accident and get a payment, you only take back what you originally paid. Claims / amounts above and beyond what you pay are haram. Because the income will have interest (riba), uncertainty (Gharar), and gambling (Qimar).

Why Is Car Insurance Illegal? (Explained with evidence!)

Car insurance is haram in Islam because it contains elements of interest (riba) and uncertainty (Gharar), both of which are prohibited in Islam according to Sharia law. Some scholars also state that insurance is similar to gambling in that it relies on luck. You give money for insurance and you may get money back or get nothing.

When you pay money for car insurance and an accident occurs, you expect compensation. This compensation can be higher than the amount of money you pay for insurance.

In Islam, a higher amount of money is considered riba (interest). Riba is one of the major sins in Islam.

Allah Most High commands us in the Qur'an not to consume usury.

When you pay money for a car insurance policy, if there are no accidents within the year that you take out your car insurance policy, you get no monetary value as a return. In the event of an accident, you may be able to earn thousands or even millions. It is considered as gambling in Islam and the outcome has a high degree of uncertainty.

In Islam, gambling is illegal and prohibited in the Qur'an. And a high degree of uncertainty is known as gharar. And the Prophet (sallallaahu 'Alayhi wa sallam) forbade transactions containing gharar (uncertainty).

Is paying monthly car insurance Haram or Halal? - Explained!

Paying monthly car insurance is lawful if two conditions are met:

Compulsory car insurance in your country

The Total payment for twelve months is equal to the annual price

If the total twelve-month premium is higher than the annual price, then the higher premium is riba (interest). Riba is illegal.

So it is better to pay your car insurance premium in one time pay with annual premium. If you really can't afford to pay your entire annual premium at once, then you can pay monthly out of necessity (dharoorah).

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