Car Insurance and Takaful on a Financed Car in Pakistan: Costs, Claims and Choices

Every bank in Pakistan requires comprehensive insurance, or takaful for Islamic financing, on a car it finances, for the whole term. It is one of the largest costs after the installment, yet it rarely appears in advertised plans. This guide explains what you pay, how the bank is involved, and what happens if you need to claim.

Why the bank insists on comprehensive cover

Until you have paid off the loan or rental, the car is the bank’s security, or under Ijarah the bank’s own property. If it is stolen or written off, the bank needs to recover what it is owed. So it requires comprehensive cover against accident, theft and fire, and it is recorded on the policy as the loss payee, which means a total-loss payout goes first to the bank. Third-party-only insurance, which is the legal minimum for driving, is not enough for a financed car.

What it costs

Premiums are a percentage of the car’s insured value, typically around 1.5% to 3% a year, depending on the make and model, the city, your age and claims history, and the insurer. On a Suzuki Cultus VXR listed at PKR 4,089,490, that is roughly PKR 61,000 to PKR 123,000 for the first year. Sedans and SUVs cost more in rupees, and models with high theft rates attract higher percentages. The insured value usually falls each year as the car depreciates, so the premium falls too. Some banks collect the premium once a year; others add it to each monthly installment. Use the car lease calculator to add insurance to the monthly figure.

Bank panel insurers

Banks work with a panel of approved insurers or takaful operators and often arrange the policy for you. You can usually choose among the panel, and it is worth asking for quotes from more than one, because rates differ. Some banks allow you to bring a policy from an insurer outside the panel if it meets their requirements; others do not. Check the bank’s rules before you sign, since insurance is one of the few costs you can influence.

Takaful

Takaful is the Shariah-compliant alternative to insurance, required with Islamic car finance such as Car Ijarah. Participants contribute to a common fund that pays claims, and the takaful operator manages it for a fee; any surplus left in the fund may be shared with participants. For the policyholder the cover, the claim process and the cost are broadly similar to conventional insurance. Under Ijarah, because the bank owns the car, the bank is responsible for takaful, although the cost is built into what you pay. Our Islamic financing guide explains the wider differences.

The tracker

Most banks and insurers require an approved tracking device on a financed car. You pay an installation charge and a yearly or monthly subscription. A tracker also helps recovery after theft and can reduce your premium, so many owners keep it after the loan ends.

Making a claim

For accident damage you report the claim to the insurer, have the car surveyed, and repair it at an approved workshop; you pay any deductible, and the insurer pays the rest. Tell your bank as well, since some require notification. For theft, you file a police report immediately, inform the tracker company, the insurer and the bank, and wait for the recovery period set in the policy. If the car is not recovered or is declared a total loss, the insurer pays the insured value: the bank takes what is owed on the loan, and any balance comes to you. Under a conventional loan, if the payout is less than what you owe, you remain liable for the difference, which is one reason to keep the insured value realistic.

Keeping the cost down

Compare quotes among the bank’s panel insurers, ask for a no-claim bonus if you have one from a previous car, keep the tracker, and make sure the insured value falls each year rather than staying at the original price. A larger down payment does not reduce the premium, which is based on the car’s value, not the loan. And once you have paid off the loan, you are free to choose any insurer and level of cover; the early settlement calculator shows when paying off early makes sense. For all the other costs around a car purchase, see our on-road cost guide.