Non-conforming elements

According to the ulama, the conventional insurance is called 'muamalah fasid' as there are three elements found which do not conform to the rules and requirements of Islamic syariah. There are:

• Al-Gharar
• Al-Maisir
• Al-Riba

Al-Gharar

• It was defined as a contract where the results are not known or hidden, or one of the two possibilities where the frequent occurrence is the one that is more feared. 
• It also means there are unknown or uncertain factors in operation of a contract in both life and general insurance policies.
• There are four types of Gharar: 

1. Gharar in outcome
2. Gharar in existence
3. Gharar in the result of exchange
4. Gharar in the contract period

Gharar in the outcome 

When the contract is made, neither the insurer nor the insured knows the outcome of the contract. The insured does not clearly know whether he will get compensation or not as an exchange to the premium that he has paid. 

Gharar in the existence

In the insurance contract, the insured does not know the existence of the compensation since it depends on the outcome that may or may not occur. 

Gharar in the result of exchange

When the contract is made, neither the insurer nor the insured knows the outcome of the exchange. The insured does not know whether he or she will get the compensation as exchange to the premium that he pays. Similarly, the insurer does not know how much premium he gets. Sometimes he will receive the premium only once or a few times, but he has to indemnity an amount that does not commensurate with the premium. 

Gharar in the contract period

According to the some scholars, when a contract is deferred, the period must be made known. If not, the contract is considered void. The same situation arises in the insurance contract whereby compensation is based on a time frame that is not known and cannot be known especially in life insurance.

Al-Maisir

• Gambling.
• The insurance contract is equated with gambling where if the peril happened the insurer will lose.  On the other hand if the peril does not occur, the insured will lose. 
• Some scholars argued that the source of the money that is being paid as compensation is not determined. 
• Arises the consequences of the presence of al-qharar, particularly in life insurance.

Al-Riba

• Some scholars say that the interest whether on principal or late payment is riba.
• In the contract of exchange between the insurer and the insured, there is difference both in quantity and amount.
• Insurance companies give out loans and charge interest and this is riba. 
• Interest or other related practices in the investment activities that contravenes with Syariah.
• According to the scholars, as insurance contract is a contract is a contract of exchange, therefore exists riba al-fadl and riba al-nasiah simultaneously. 
• Riba al-fadl exists when the compensation awarded does not equate the premium paid while riba al-nasiah is premium payment and compensation which do not occur at the same time.