Insurance on a Financed Car in Pakistan: What You Must Know
You can find the car, get a pretty good deal and work to make payments. Then the financier requests an insurance policy. Some people consider it to be an administrative formality, however it determines who is liable for payment in case of theft. Before you sign, here are the considerations to have.
Required Insurance for Financed Cars?
There is a minimum legal requirement of third party insurance, however this does not offer coverage for your own car. Full coverage is available by law ( when your lender says it is required), and most lenders do require it. Those who finance their car through their bank generally need comprehensive coverage for the entire loan duration.
What Does Comprehensive Cover?
Usually covers damage, theft, and fire protection to your own vehicle and third party liability, less any damage you cause to yourself. Some insurances include flood and natural disaster coverage, and extras such as roadside assistance for an additional cost.
How much is it worth?
Comprehensive cover tends to charge around 1.5% to 3% of a car’s value for each year of the policy; some guides may suggest higher rates. On a Rs 30 lakh car, that works out to roughly Rs 45,000 to Rs 90,000 a year. Each bank has their own set of rates. In October, one comparison showed takaful at 1.49% (BankIslami) and 1.99% (Meezan), compared to 1.4% for HBL’s conventional insurance.
Whose Name Is on the Policy?
The interest of the bank is identified on the policy and the policy is made assignable to the bank. Some lenders also have tracking device requirements. Ask whether the cost of the tracker is included in your plan.
If your car is stolen or written off?
This is subject to your contract. Typically, with a standard lease, you pay it until you get the insurance payout, and you are responsible for the balance. If the vehicle is stolen or lost during the period of Bank Alfalah Islamic’s Ijarah, the hiring ceases.
What to Review in the Policy?
- Underinsuring the car to keep the premiums low decreases the amount you’ll receive in a compromise settlement.
- Some policies include depreciation instead of replacement value.
- Read the fine print on flood and theft coverage (exclusions)
- Know the deductible amount for each claim.
How Can You Pay Less?
The premiums for the same vehicle can vary by up to 30%- 50%. Fines can be reduced by up to 35% after 5 years without a claim.
Conclusion
Insuring an financed vehicle is for both you and your lender, and the agreements determine what’s involved if you have to file a claim. Review the insurance coverage, limit, and coverage for total loss before signing.
