Insurance has been a debatable subject ever since its concept was introduced but as far as an Indian Muslims or any Muslim living in a non-Islamic country is concerned; it has been permitted by the majority of scholars on various grounds. (Please see the chapter “Misconception – Riba“).
The Islamic scholars who opined that insurance is permissible said that insurance is a modern contract and there is no injunction (Nass) regarding it. If there is no injunction, then it is allowed as Mubaah (legitimate). They based their argument on the established legal maxim:
“The original legal position on any matter is permissible until there is clear evidence prohibiting it”.
To reinforce this view, The Quran lays down the principle that Allah has clearly explained his prohibitions in the Quran, which says:

وَقَدْ فَصَّلَ لَكُم مَّا حَرَّمَ عَلَيْكُمْ إِلاَّ مَا اضْطُرِرْتُمْ إِلَيْهِ
سوره الأنعام:6 , آيت:119 , جزء من الآية

…While He has explained to you in detail what is forbidden to you, except under compulsion of necessity?
Chapter 6: Al-An’am, part of verse:119.

Therefore, a mere presumption is not enough to declare something unlawful. Muslim scholars have held that any injunction that over-rules this principle of permissibility must be decisive in meaning and transmission in clear words. (Nass an qati’ul thubt wa addalaala)

The main objections about insurance are that it is interest, gambling, uncertainty, etc. This is true in case of most of the world’s insurance companies, but as far as Indian or Pakistani life insurance is concerned, we must analyse the degree of involvement of these unlawful elements and justify. The degree of involvement varies from company to company and policy to policy. Not all the policies and products can be regarded same. There are some policies which do not involve or involve but to a minimum level which can not be avoided technically.

The scholars further claimed that insurance is a contract that brings ‘Maslehah’ (help, rescue, precautions and safety) to the insured. Without insurance, for example, one’s next of kin will suffer a huge burden after his death. Also, scholars said that ‘Urf‘ (custom) establishes insurance as compulsory to protect an individual and his heirs. According to them, an insurance contract is not a contract of exchange, neither it is a deal of loan between two parties, it falls under the concept of ‘Tabarru’ (donation) or Amana (deposits). It is a contribution in which one party takes the risk and gives security by a pooling method. In return, he too gets security and benefit.