CSSMuslim Law

Q. No. 5. Define gharar. It is said that insurance is a modern contract of gharar and is incompatible with the injunctions of Islamic law. Argue. 2020

Gharar is an Arabic term that means “uncertainty” or “risk.” In the context of Islamic law, gharar refers to transactions that involve excessive risk or uncertainty, which may lead to harm to one or both parties involved in the transaction. Islamic scholars have identified three types of gharar: excessive uncertainty, deception, and speculation.

Regarding the compatibility of insurance with Islamic law, there is a difference of opinion among Islamic scholars. Some scholars consider insurance to be permissible, while others consider it to be a form of gambling (maysir) and gharar.

Those who consider insurance to be permissible argue that it is a valid form of risk-sharing (takaful) among the participants. They also argue that insurance contracts are based on the principle of indemnity, where the policyholder is compensated for actual losses incurred due to a specific event, and not on speculation or chance.

On the other hand, those who argue that insurance is incompatible with Islamic law point out that insurance contracts involve the payment of a premium in exchange for a promise to pay a future benefit, which resembles gambling. They also argue that insurance companies invest premiums in interest-bearing investments, which are prohibited in Islam.

In conclusion, while there is a debate among Islamic scholars regarding the permissibility of insurance in Islamic law, it can be argued that insurance contracts can be structured in a way that is consistent with Islamic principles of risk-sharing and avoiding excessive speculation and uncertainty.

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