A life insurance policy offers fixed returns on part of its investment, as this investment is placed in government bonds. Could you please explain whether such a policy is permissible or not? — M. Adil
Insurance is permissible, as I have explained several times, although some scholars still pronounce a verdict of prohibition on it. Insurance is an agreement for compensation in case of loss. The compensation is paid from the premiums of the clients, who by taking their policies have all agreed to compensate any one of them who incurs such a loss. Thus, it is a cooperative agreement to indemnify those of their numbers who meet a specified misfortune. Some scholars point out that insurance involves something that cannot be quantified, which is referred to in Islamic law as gharar, and such deals are forbidden in Islam because they make one party unclear about what he gets out of the deal. However, the late scholar Mustafa Al-Zarqa discusses this at length in a book he devoted to insurance and concludes that the gharar involved in insurance is very element and does not affect the validity of the deal.
Needless to say, an insurance company will not prosper unless it invests its income in some profitable projects. Normally, such companies look for investments that guarantee returns. If they were to invest in high-risk funds, they may find themselves faced with a double problem of their investment incurring a loss and a large number of claims that may arise of some disaster like floods, earthquake, etc. If their investment is a low risk one and guarantees modest returns, it is all the better. Hence, they invest in a fund like government bonds.
Governments may need cash because they have high expenditure projects, such as building roads, hospitals, or other public services. A government does not undertake business, but its projects and services are important to the community. Government income is made of taxes and fees charged on services. It is a totally different source of income than that made by businessmen. Hence, the returns given by a government on its bonds are not a proportion of profits. Therefore, it has to specify how much it will give on its funds. We cannot think of a government bond in the same terms, as a usurious loan through which the usurer exploits the borrower needs in order to extract heavy profits. Nothing of this is involved here.
On the other hand, the fact that the returns are fixed does not make the policy unlawful. In fact, fixing returns may often be advantageous to the weaker party, which in this case is the policyholder. What we should remember is that Islam looks to what serves the community without exploiting its weaker members. What brings benefit to the community and individuals is lawful, and what brings harm is forbidden. Usury is forbidden because it brings much harm, while trade is lawful because it brings benefit and profit.
To sum up, the policy you are asking about cannot be considered unlawful on the basis of what you have mentioned. If it does not involve anything else that may be unlawful, then it is lawful to take out.
