Ever since the insurance companies were established in India early in 20th century a section of orthodox Muslims regarded insurance as haram as they thought that elements of interest and wager are involved in it. But enlightened Muslims like Sir Syed Ahmed Khan, Sir Agha Khan and Allama Iqbal have regarded insurance as beneficial to the society. . Hakeemul Ummat Allama Iqbal was among the founders of Muslim Insurance Company in Lahore. Quite a few ulema have given fatwas that Insurance is not prohibited/haram. But there are fatwas declaring insurance as haram and all of them are based on faulty understanding of insurance. 

Sir Syed Ahmed Khan, Sir Agha Khan and Allama Iqbal have regarded insurance as beneficial to the society. Hakeemul Ummat Allama Iqbal was among the founders of Muslim Insurance Company in Lahore

Life insurance guarantees a specific sum of money to a designated beneficiary upon the death of the insured or to the insured if he or she lives beyond a certain age. But you cannot insure anybody for an amount larger than that can be justified by loss of income and other losses resulting from death of proposed insured and the beneficiary must have financial interest in the life to be insured by virtue of blood or business relationship i.e. he must be in a position of loss due to death of the person to be insured. 

Dependents face the risk of cessation of support or income due to the death of breadwinner of the family. A creditor or business partner has finacial interest in the life of debtor to the extent of the amount of debta or partner's share.Parents and children are supposed to have financial interest in each other based on their income or earning capacity. Unlike loss in insurance on property, the element of uncertainty in life insurance is not if death will occur, but when. Life insurance covers loss of dying too soon. Life annuity policies provide life time income covering the loss of living too long. 

Although the modern insurance business was developed in England, the rudimentary form of insurance was started by the Arab traders somewhere in 7th century. Traders who were exchanging goods with Asia, Africa and Europe used to set aside a small contribution in a pool to compensate the losses of traders whose goods perished during the transit. Modern insurance business operates on the same basic principles. Now besides Mutual Societies and private insurance companies collect premiums and cover big losses. Modern statistical methods and actuarial practices enable the losses to be predicted fairly accurately. That indicates how many losses are likely to occur but they do not tell who will suffer and where exactly the loss would occur. Smilarly in life insurance mortality rates show a predictable trend of deaths in a group of people at different ages and the premiums are calculated with their aid. 

Insurance business saves many business and industries from ruination as a result of fortuitous loss. Workmen's compensation Insurance provides valuable assistance and income to industrial workers who sustain injuries or when they become disabled due to injuries sustained while on duty. Different forms of insurances are available to save us from big losses that occur due to fire, theft or burglary, car snatching. accidents, disease. catastrophe etc.

Life insurance saves widows and orphans from becoming dependents and burden on distant relatives or living on charity. Life insurance enables the money to be saved for higher education or marriage of children or insured's own retirement.  The benefits of group insurance both in Life, Accident and Health insurance provide additional security to the employees and other forms of insurance are useful for society. For instance Mortgage Insurance can take care of instalments to be paid on car or house to the creditors other wise that burden would be too great for the dependents. Much needed Un-employment Insurance has not yet been properly introduced in Pakistan as it cannot be implemented here without State support in a developing country like Pakistan.

The main objection of some Ulema is about the  Interest that is  employed by  insurance companies in their calculations. They feel wrongly that all the premiums are invested in interest bearing bonds. The fact is that creation and maintenance of reserves set aside for future claims is strictly regulated by Insurance Act and the Insurance companies are required to invest substantial portion in the Government Securities which is the soundest though not so profitable investment. They also ivest in shares and  different projects and real estate. Their income is not solely dependent on interest. Moreover Interest Free Insurance is also possible and is practiced in some countries. 

Despite their objections the bigots are not able to suggest suitable  alternatives for providing the benefits that are available to the individual and institutions under insurance policies. However they feel it is the State's responsibility to cater for such benefits which has not been possible during the last several centuries. Even in rich countries the social security benefits provided by the Government are considered inadequate. Some Ulemas feel that insurance should be allowed only as a cooperative movrment and not as a business. However their thinking cannot be justified by Holy Quran or Sunnah and is based on misconceptions about insurance and economics.

The argument given by some Ulema is that Islam is opposed to accumulation of wealth and insurance companies amass wealth. When they were told that banks and big industrial and commercial companies hold much larger capitol and reserves, they seems to be suggesting take over by the Government. It does lay great emphasis on fair and equitable dealings and justice in all transactions and profiteering and hoarding are discouraged but there is no prohibition on legitimate profits. Holy Quran says that sovereignty belongs to Allah and man is only his vicegerent it does not prohibit private ownership or fixes any limit on it. While it does lay great emphasis on charity, help and assistance to the poor and needy but only through the institution of Zakat and there is no compulsion or provision on taking over private property by the rulers. It is interesting to note that none of these Ulemas who regard that Sate has a right to take over wealth beyond the needs of the individuals do not say anything about the Sultan, Kings and dictators and their relatives in oil rich Islamic countries.

Islam is not opposed to free market economy
The fact remains that Islam is not opposed to free market economy. Only broad principles are laid down as moral guidance and the principle on which our values and standards are to be based. Insurance Business is highly regulated throughout the world. Standards of solvency and regulations for management of reserves or insurance fund are strictly enforced by the department of insurance. Annual returns and audited financial statements are scrutinized by the government. When annual or biennial actuarial valuation indicates that the life fund exceeds the reserves needed to meet the future liabilities (future claims and expenses likely to arise) almost 90 to 95% of the surplus is distributed among the policyholders as reversionary bonuses or dividends and only 5 to 10 % of the surplus is distributed among the shareholders of the company as dividends. If the life fund falls short of the reserves required to meet the future liabilities the management has to raise capitol investment. 

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