Answer
Wa `alaykum As-Salamu waRahmatullahi wa Barakatuh.
In the Name of Allah, Most Gracious, Most Merciful.
All praise and thanks are due to Allah, and peace and blessings be upon His Messenger.
In this fatwa:
If Islamic insurance is available, you should go for it. If it is not available and you need really insurance (any kind of insurance), you may go for conventional insurance provided you avoid riba (interest).
In his response to your question, Prof. Dr. Monzer Kahf, Professor of Islamic Finance and Economics at Qatar Faculty of Islamic Studies, states:
At this age, insurance companies do not give you any good pension anyway.
Insurance is not permissible, according to the majority of scholar. As an exchange contract, it contains ambiguity with regard to its final outcome.
In this example, how many payments of pension you will receive because we do not know when one is going to die.
If Islamic insurance is available, you should go for it. If it is not available and you need really insurance (any kind of insurance), you may go for conventional insurance provided you avoid riba (interest).
Any pension insurance contract done with any insurance company is based solely on interest in addition to the probability of life expectancy because you pay now an amount of money and they give you back an annual or periodical amount, the difference is interest.
This does not include two kinds of pensions: the obligatory pension that is done in many countries like the social security in America and the employment pension that many companies have for their workers. These both are based on employment.
Allah Almighty knows best.
Editor’s note: This fatwa is from Ask the Scholar’s archive and was originally published at an earlier date.