my question is what is the fatwa on the 401k insurance

In the name of Allāh, Most Gracious, Most Merciful

Assalāmu ῾alaykum wa Rahmatullāhi Wabarakātuh

Insurance is haram according to the jurists except where one is compelled/required by law.1 The reason for insurance being impermissible is because it involves uncertainity, gambling and interest.

GHARAR (UNCERTAINITY): As for gharar (uncertainity), Rasulullah (Sallallahu `Alahyi Wasallam) forbade transactions [the outcome of which was determined by throwing] stones and transactions involving uncertainity.2

MAYSIR (GAMBLING): As for gambling, verses of the Quran, clearly prohibit it,: “O you who believe! Intoxicants (all kinds of alcoholic drinks), gambling, AlAnsâb, and AlAzlâm (arrows for seeking luck or decision) are an abomination of Shaitân's (Satan) handiwork. So avoid (strictly all) that (abomination) in order that you may be successful.”3

RIBA (INTEREST): Verses in the Quran, prohibit interest: “O you who believe! Be afraid of Allâh and give up what remains (due to you) from Ribâ (usury) (from now onward), if you are (really) believers .” 4

Example of Uncertainity in Insurance: You pay $25 a month in return to be insured against a potential loss of $100,000. If something happens and you make a claim covered by your insurance policy, then they will pay you. In the event, nothing happens, they don't pay. This is uncertainity.

Example of Gambling in Insurance: Keeping with the above example, because you stand to loose or gain based on an unknown event in the future – you are gambling.

Example of Interest in Insurance: In the event of a claim, you might get more than the amount you paid – or the insurance company might get more if there is no claim. In this exchange of money for money, one side gets more and one side gets less – that is interest.

And Allāh Ta῾āla Knows Best
Wassalāmu ῾alaykum

Ml. Sohail Bengali
Correspondence Iftā Student, US.

Checked and Approved by:
Mufti Ebrahim Desai
Dārul Iftā