I wish to know about the concept of Insurance in Islam? Are Muslims allowed to take an insurance policy? In this policy we pay an annual premium and of course after 10-20 years the policy expires and we receive our money with profit. Please explain this concept to me.
In its classical concept, insurance is a means of helping individuals who are afflicted with damage and loss. Therefore, in its essence, it is a philanthropic and humanitarian undertaking. As such its underlying spirit seems very noble.
Today, particularly due to the absence of a state system of security and insurance in most underdeveloped countries, there are a number of insurance companies in the private sector which are doing this job. Also, it is known that they are based on interest. However, buying an insurance policy cannot be regarded as forbidden since one is not taking interest in doing so. At best, it can be regarded as furthering and promoting an evil, which according to the Qur’ān (5:2) is ta`āwun `alā al-ithm (co-operation with an evil) and which should be avoided as much as possible. So, a careful approach would be to benefit from insurance policies only if a person feels that it is necessary to do so in his circumstances. A person must decide for himself in this regard instead of asking some external authority -- since it is only he who is the best judge of any genuine plea that he may have.
There is one thing which must be kept in mind about all policies in which the insured sum is greater than the sum total of all the premiums and in which a person actually receives a "profit" when the policy expires: this so called profit is actually interest. In such cases, he should not benefit from this profit and spend it on the society without expecting any reward from the Almighty, since this money actually does not belong to him.