Reference: I’laam al-Mu’aasireen bi-Fataawa Ibn ‘Uthaymeen – Page 443-444
Question: What is the ruling regarding dealing with insurance companies which insure [our] wealth and cars, bearing in mind they say their operations are Sharee’ah compliant?
Response: Insurance companies operate [like this]: A person pays a specific amount of his money every year [to the insurance company], for example he says this is my car and I am insuring it for SR500 every year [based upon the possibility] that if it is damaged in an accident – who will [pay the costs to] repair it? The insurance company [will].
And if there is no accident, then the [insurance] company is protected [from making any payment] – and this in itself is equivalent to gambling which Allaah Ta’aala has prohibited in His Book, and the Muslims are in agreement over [its prohibition], as He Ta’aala says:
Anyone who has undertaken [such] an agreement with an insurance company has either profited or made a loss.
So when is he considered to have profited?
If his car is damaged in an accident, then in this case he is considered to have profited because he has [only] paid SR500 and his car is to be repaired [at the expense of the insurance company] for SR5,000. [Alternatively] he is considered to have made a loss when no accident occurs, since he has paid SR500 [to the insurance company] without any tangible benefit.