Some scholars doubt that the insurance is a kind of Gharar (uncertainty), a kind of betting in which the object or the subject matter of the transaction is not known. For example, usually at the ports, the containers, which are not claimed or seized by the custom authorities are auctioned out at the end of year. The buyers have to bid on the containers without knowing the type, quantity and the cost of the goods inside. Another example is the: Cows or buffaloes inside the water. The bidder bids without knowing the number, age or the health of the animal. This is called Gharar. The Shariah declares this void and sinful.
In answer to this objection, Dr. M. Najatullah Siddiqui says that:

The Shariah wants to make sure that any party who enters any dealing must acquire the full knowledge about the terms and conditions, profit and loss, rights and the duties of each party etc. Nothing should remain vague for any party which can become the root of anger, grief and dispute later on. If the knowledge about the quality and the quantity of the commodities under selling or buying, is lacking, it creates the clash of interest and, consequently, the conflicts.

The basis of the Gharar is the lack of knowledge and lack of certainty about the quality and the quantity. For example, the selling of a whole lot of fishes of the lake without knowing the quantity or quality, or the selling of the progeny of a pregnant camel before she gives birth.

In the other dealings like the services, the parties involved must know the terms, conditions, duties and rights of each other, otherwise the deal enters into the Gharar. Such a kind of Gharar can be avoided as this does not come under the necessity. As far as those Gharars are concerned which can not be avoided because they are essential to fulfill a necessity, are not prohibited in the Sunnah, as far as our knowledge is concerned. The Fiqh experts agree that for those needs of the society which are essential, the involvement of the Gharar is bearable to a little extent. If it exceeds, the dealing will be void. Obviously, there is a difference of opinion among the Fuqha in determining the little or big but most of the Fuqha consider that this kind of Gharar is negligible as abandoning such deal will be more harmful.

As far as the insurance is concerned, the company knows about the sum of money it will receive and pay. The knowledge about the money to be paid will be based upon the law of average. The possibility of mistake is less in this method. Even if the mistake occurs, it can be covered if the insurance system is mutual or under the governance of the state. Nevertheless, for an individual it is not possible to know in advance how much he will get and how much premium he will have to pay. The reason of this uncertainty is that the accident is unexpected. It can not be forecasted where and when the accident will take place. How much will be the loss. Whether the accident will really take place or not. This kind of uncertainty is unavoidable. This situation alone is the motivation of insurance. It is not fair to declare the insurance as illegitimate just because it carries a kind of Gharar on the part of an individual. Otherwise, the protection from the uncertainty will be impossible. Moreover, this is an extraordinary situation. It should not be prohibited on the whole just because of the Gharar involved on the part of the individual.

The transaction dealing of the insurance is modern. It is different from the traditional transactional dealings of give and take. The kind of uncertainty found in this is different from those dealings, which are mentioned in the Sunnah. This is a case of uncertainty on the part of an individual but certainty on collective level.

This kind of uncertainty does not become a point of conflict as the one who buys a policy has got prior knowledge of the uncertainty. He does not have any misunderstanding. He knows that he is going to buy a security against an unexpected accident. It is possible that he does not meet any accident. He does not resent the company if the accident does not take place. Neither has he got a feeling that he is cheated or the company took an undue advantage of the uncertainty.

As mentioned above, the premium is actually the ‘price of the security’ which a policy buyer is paying against any financial loss. This security is known and certain whether the financial loss occurs or not. Irrespective of the fact that who gets the compensation, who does not get anything at all as he does not meet any unexpected, and how much each person has to pay as premium, the Gharar on the in-dividual level too is absolved. The duties and the rights of each party are known to each other. Nevertheless, the financial consequences are dependant on those happenings, which are uncertain.

Some contemporary scholars like Mustafa Zarqa of Syria, Syed Mohammad Sadeq Al Hasni Al Rohani of Iran and Dr. Mohammad Al Bahi of Egypt have pointed out that the Sunnah prohibits some dealings which carry excessive Gharar. This applies on the Gharar of selling only. This does not apply to the individual Gharar in any part of the life. The Shariah approves those individual dealings in which there is an element of uncertainty like the marriage, ijara, selection of leader, selection of Hakam (judge) to resolve the conflicts.

Does the insurance contract involve the element of Gharar? Dr. Mohammad Masum Billah, PhD, USA refutes this as:

In an insurance policy generally, the subject matter is the life or the property on which the risk is presumed to be occurring in the future. The subject matter of the insurance contract is definite and certain. Similarly, the subject matter of a life insurance policy is the life of the assured who has been blessed by Allah with a life and who will also one day die by the will of Allah. Such occurrence of life and death is, of course, definite and certain as Allah says in the Quran:

كُلُّ نَفْسٍ ذَآئِقَةُ الْمَوْتِ
سوره آل عمران:3 , آيت:185 , جزء من الآية

…Everyone shall have a taste of death…
(3:185)

Therefore, the allegation that the insurance policy involves the element of Gharar, thus making it invalid, is baseless.