Purpose: Despite several Fatwas available, the Sharīʿah status of insurance policies continues to be doubtful. This paper aimed to addresses the issues of Sharīʿah compliance in insurance industry. It intends to inform the stakeholders and customers of insurance industry about the insurance policies and their status in Islam. Further, as conventional insurance is not fully aligned with Sharīʿah principles, this paper attempted to explore the alternatives of it which conforms the Islamic principles and fulfill the needs of customers as well. Design/methodology/approach: An interpretive approach has been adopted to build the foundations of Sharīʿah compliance in insurance. In addition, secondary sources of authentic Islamic manuscripts have been qualitatively analyzed. The basic factors that have been focused are interest, gambling and uncertainty, because of which insurance policies have been prohibited. Findings: The basis and reasons behind the prohibition of insurance have been established and the alternate model Takaful has been proposed. Furthermore, comparative analysis has been established at the end. Originality/value: Findings can be applied to understand the dynamics of Shariah compliance issues in insurance industry. Further risk mitigation models can also be developed as an extension of these findings. This research can be applied on a standalone basis or as an extension to the conventional counterparty risk mitigation models.
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