Concept of Insurance in Islam

Dear All
I have always been very confused about the idea of Insurance in Islam and its credibility. Recently, I had a discussion on this topic with three of my very close friends and have got some more insight from them. Two of my friends were in favour of Insurance in some form and had their own views about the topic, please note that these two have good knowledge of Islam. I would not call them molvis, they are moderate muslims but have good knowledge on various subjects in Islam (although this is no yardstick). I will put down my reservations, their answers and a few other views here and would like to have views from the rest of the users here. Please do participate in the discussion with your own understanding (whatever that may be) and please be open in your views as this might clarify some ambiguities they you or others might have. Thanks.

What is Sood (Interest) that is stated as Haram (forbidden) in Islam ?
My understanding is that any income that falls under the following criteria

1. Is fixed
2. Is definitely profit (no risk of loss)
3. Does not involve any effort/ work

Savings account in a Bank
To me a savings account in bank is the purest form of interest and is Haram. It gives a fixed return over an year, is always a profit over the deposited money and it does not require any work or any effort from me. No risk.

There are two other viewpoints on the bank deposits in savings accounts.
If a family does not have any sources of income and they don't know how and what business to invest in, the interest money from the bank is Halal (allowed). Just to give you an extreme example, if say a women is a widow and her children are young, and there is just the cash that they have and nothing else, the interest money from the bank is HALAL (allowed).
In early days of Islam, when interest was made Haram (prohibited), the currency used to be of GOLD and thei value did not use to depreciate. Gold used to appreciate with rising inflation and people could buy the same amout of goods even after many years of price hike. In modern times, with currency notes in fashion and value of currency depreciating everyday with rising inflation, people cannot buy the same amount of goods after one year with the same money that they have now. Keeping money in savings accounts of the banks only safeguards against the possible devaluation of money in the form of interest. So it is actually not interest and is justified.

Insurance
Now let’s talk about insurance. There are two forms of insurances, insurance of a product (object/ material) and life insurance of humans.

Product Insurance
If a person or company owns some product (e.g. car or house or goods) and wants to insure it against any possible harm (e.g. theft, fire, accident etc.), the person or company would get the product insured by some insurance company. There will be some fixed payment in the form of insurance fee that the person or company will pay to the insurance company and in-turn the product would be insured. Now if any harm is inflicted upon the product, the insurance company bears the cost to the tune it is insured. But the key point is that the payment money in the form of insurance fee is not returned, if there is no claim.

Life Insurance
Life insurance of a human is a somewhat newer concept as compared to product insurance, which has been there for many centuries (so it is known). In life insurance, a person keeps on making a certain amount of payment for a certain number of years (we have 20 years normally offered by State Life and EFU) and it covers three areas.

1. If the person dies within those 20 years, his family (beneficiaries) receives a handsome sum of money, already decided at the time of signing the insurance contract.
2. If the person does not die within those 20 years, a handsome some of money is given to him as profit incurred on the yearly installments of payments he had been making to the insurance company.
3. In some cases, in addition to one of the above, if the person falls ill, his medical expenses are borne by the insurance company during those 20 years.

Now my question specifically relates to the first 2 points. If the person dies, the family gets a fixed amount of insurance money (as is the case with product insurance). However, in life insurance, if a person does not die, he still gets a fixed profit on his actual installment payments in addition to the total actual amount paid to the insurance company.
Now this is a win-win situation and this income somewhat falls under my definition of interest i.e. Is fixed, Is definitely profit (no risk of loss), Does not involve any effort/ work.


taken from:http://www.buzzvines.com/concept-insurance-islam