Dr.Monzer Kahf, a prominent economist and counselor states: “Insurance is a controversial issue among Muslim jurists. I go along with the view that sees it permissible with conditions. As a contract it is a new contract that on itself does not violate any Shari’ah principle. Hence the conditions are: it must not be interest-based and the object of insurance must be permissible. These two conditions are satisfied in house, health, car and most life insurance contracts. The only problem comes in some kinds of life insurance whereby interest is in the core of the contract (what is known as whole life insurance which is the most common anyway). It also comes in insuring certain prohibited things such as insuring a shipment of liquor.
On the other hand, there are scholars who argue that the insurance contract contains a great deal of Gharar (unknowability) that makes the contract invalid. These argue that this Gharar shall be forsaken if we change the structure of insurance giver, making it a cooperative that receives premiums as donations. Based on this argument Islamic insurance companies are founded.
When we have Shariah companies and financial institutions, it is of course better to go for them because they are acceptable by all. They also offer another benefit that it invests only in ways that are permissible in Shari’ah.”