One must not forget that India is not a Muslim state. While, no Muslim state can claim to have established an absolute interest-free economic system, one can not expect interest-free dealings in India. The interest is not the prime objective in the insurance; it is secondary and acts as a functional part. Under the “necessity” rule, the prime objective is the financial security to an affected family. According to the law of priority, the secondary factors cannot supercede the prime objective if it meets the aim. The prime objective, in the eyes of the Shariah, is not only permissible but encouraged.

There are two main differences between Islamic based insurance “Takaful” and conventional Life Insurance of India and Pakistan.

1. According to Al-Mudureba concept of Islam, the insurance company works as an operator and the profits are distributed among the policy holders. The operator’s profit sharing margin is fixed while in the conventional life insurance the policy holders do get the profit in the form of bonus and added profit etc. The major profit holders are the investors. (In the case of life insurance, it is the Government who takes 51% of the profit being the main shareholder, and rest is distributed among the shareholders.
2. In the Islamic insurance the accumulated premium is invested in an interest-free contract. Also, it must be made sure that the investment is not engaged in any such business which is prohibited in Islam like wine, smuggling, usury, hoarding, money laundering, etc.

Both the differences will be discussed later in this chapter.
The contract of insurance is not the contract of interest. No clause of the contract mentions the guarantee or promise of interest. Neither any percentage of interest is fixed. The extra money paid to the insured on the maturity of the claim or on the happening of certain catastrophe, is called bonus, commission or the profit earned through the business investments made by the insurance company. One has to be careful here to check whether the insurance company is investing in any such operation, which Islam does not permit. The companies declare their statement of accounts and balance sheets at the end of the years. Their investment policies are transparent and can be seen on the internet too. No such investments were found which can be opposed by the Shariah.
If the element of interest, which is not the primary objective of the insurance, is a major concern which invalidates the whole insurance system and makes it illegitimate, then the infrastructure of the country like bridges, power plants, irrigation projects, railway and several other facilities too will be illegitimate to be used.
There are 12 companies in India who have been licensed to run the Life Insurance. They are spread all over India covering almost every remotest village. As an example, let us have a close look on the investment made by LIC and realise how the insurance benefits the humanity which would be never possible if it were only an interest trade or gambling. It deploys the funds to the best advantage of not only the policyholders but the country as a whole, true to the spirit of national integrity.

Investment in socially oriented projects:
Year 2004 :: Rs.256,105
Year 2005 :: Rs.312,524

Investment in community welfare projects:
Year 2005 :: Rs. 385,639

Investment in electrification projects:
Year 2004 :: Rs. 14,805
Year 2005 :: Rs. 25,727

Investment in housing to weaker sections:
Year 2004 :: Rs. 20,694
Year 2005 :: Rs. 21,346

Investment in water supply, sewerage:
Year 2004 :: Rs. 7,111
Year 2005 :: Rs. 10,346

Investment in road transportation sector:
Year 2004 :: Rs. 1,373
Year 2005 :: Rs. 1,387

Investment in airports, ports, railways, etc.:
Year 2004 :: Rs. 1,272
Year 2005 :: Rs. 2,463

(All the figures are in thousand crores.)

More to add are the projects of industrial growth, irrigation, power generation (private sector), municipalities, etc. The government engages the other companies’ investment too in telecommunication, agriculture, health, education, etc.
It is no less due to these investments that the country is the fastest developing country in education and technology. The Muslims too are being benefitted. It is not that only the insurance companies are playing the main role in the development, there are, of course, several other faculties taking part in the development, but our objective is to show to the critics that, unlike gambling, how the insurance is useful to not only the policyholders but also to every countryman irrespective of the caste, color or region. This is perfectly a picture that somewhat resembles with that of the divine instruction sent by Allah in the Holy Quran for mankind.

وَتَعَاوَنُواْ عَلَى الْبرِّ وَالتَّقْوَى وَلاَ تَعَاوَنُواْ عَلَى الإِثْمِ وَالْعُدْوَانِ
سوره المائدة:5 , آيت:2 , جزء من الآية

And help one another in righteousness and in piety; but help not one another in sin and transgression
Chapter 5: Al-Mai’dah, part of Verse 2.

If the infrastructure of the country had not been made is such a planned way, India would not have been different from Bangladesh or many other African and Asian poor countries. The reserve funds in thousands of crores accumulated due to the life insurance help the country to avoid the foreign loans. Otherwise, the country has to depend upon the superpowers and be dictated by them which we can see in case of Pakistan as well as several other Muslim countries.

One can raise the objection that all the investment as mentioned above is made on the basis of interest. It is true. The Government who uses these funds in the developments is not a business enterprise, neither the projects on which the government spends are profit generating, they are of public welfare only. Therefore, the government can compensate a loss in the profit which a depositor or the policyholder would have. If he invests or deposits he would get an increment, so why should he invest the money for the investment where the value of the money will come to half of it due to a higher inflation rate. So, it is the moral as well legal responsibility of the government not to deprive the policyholder from his right of the profit and pay him a substantial amount which he would get from other business or investment or the bank deposit.