Sheikh `Abd Allah b. Bayyah, professor at `Abd al-`Azîz University in Jeddah
The general ruling for commercial insurance as it is practiced in Europe and America is that it is unlawful, because of what it entails of contractual uncertainty (gharar). Indeed, the contract has its very basis in uncertainty, since it is unknown whether the insured is going to suffer the problem that the policy insures against. If the insured suffers the problem that the policy insures against, then the beneficiary of the policy benefits far in excess of the amount that has been paid into it. On the other hand, if nothing happens to the insured, the money that is paid into the policy is lost.
This is the general ruling that has been confirmed by the resolutions of the Fiqh Council for all forms of commercial insurance when cooperative insurance is available. Cooperative insurance has as its basis organized cooperation between the policyholders and is permitted.
However, in consideration of the fact that in Europe cooperative insurance and other Islamically valid alternatives are unavailable, it is permissible to receive benefits from commercial insurance in order to avoid difficulties and hardships that would otherwise ensue.
The reason for this is that contractual uncertainty (gharar) is permitted and tolerated in the event of need. This can be seen in a great number of questions that Islamic legal scholars have discussed. They have specifically stated that contractual uncertainty is permitted when there is a need for it or when avoiding the uncertainty imposes difficulties.
On this basis, it is permissible for a person to receive full benefits from an insurance policy that he is required to subscribe to by law. There is no sin upon him for doing so.
However, if there is some form of cooperative insurance available that complies with the dictates of Islamic Law, it is obligatory to use that and to refrain from using a commercial insurance policy.
And Allah knows best.
Source: Islam Today