Cooperative insurance is sometimes described as the lawful alternative to commercial insurance. In what ways do the two types differ? And what is it that makes commercial insurance forbidden and cooperative insurance permissible?
The term “Cooperative insurance” does not mean compensation, it only means mutual cooperation in times of affliction and accidents. As far commercial insurance, the aim of it is profit and it is a form of gambling, which Allah – Almighty, All-Powerful – has forbidden in His book, and He has mentioned it along with (drinking) alcohol, Ansab (i.e. idols), and seeking decision through diving arrows. This is the difference, and this is why you find that when a man lends a person a Dinar and the borrower does not return it until a year or more or less has passed, this would be correct, but if he gave him a Dinar in compensation for each Dinar, this would be wrong and forbidden. So, the person’s intention has an influence on changing a transaction from forbidden to permissible.
Shaykh Muhammad bin Salih Al-‘Uthaimin