SADAF AURANGZAIB, Senior Correspondent
Oct 01 - 07, 2007

Today the world we are living in is full of surprises and no one knows what comes next for him. In this age insurance is something that is one's biggest help. It is an extra added living cost, but in the end it can save you more money. When an accident occurs, or something unexpected comes up or even if you need to get some regular checkups, insurance can make the whole process easier and lighter on your pockets. Insurance can help also ensure that when you are unable to work your expenses will be covered, you will be protected and so will your family. By purchasing insurance plans you are not only responsibly taking care of yourself, but you are doing so for your loved ones.

There are many different types of insurance policies available to make your life better. There is everything from car insurance available to life insurance.

Today if you own a car, auto insurance is not just an option-it is a legal necessity. And you wouldn't want it any other way. If you are involved in an accident or have your car stolen, owning the right kind of auto insurance can help to ease a difficult situation.

Auto insurance protects you against financial loss if you have an accident. It is a contract between you and the insurance company. You agree to pay the premium and the insurance company agrees to pay your losses as defined in your policy.

The obligation of Auto Insurance is entrenched in Pakistan's economy as well. Today many banks and leasing companies are working towards this cause. Let us first gain an insight as to

What Auto insurance basically is?

Auto insurance provides property, liability and medical coverage:

Property coverage pays for damage to or theft of your car.

Liability coverage pays for your legal responsibility to others for bodily injury or property damage.

Medical coverage pays for the cost of treating injuries, rehabilitation and sometimes lost wages and funeral expenses.

What is covered by a basic auto policy?

Internationally the auto policy may include six coverages. Each of it is priced separately.

1. Bodily Injury Liability

This coverage applies to injuries that you, the designated driver or policyholder, cause to someone else. You and family members listed on the policy are also covered when driving someone else's car with their permission.

It's very important to have enough liability insurance, because if you are involved in a serious accident, you may be sued for a large sum of money.

2. Medical Payments or Personal Injury Protection (PIP)

This coverage pays for the treatment of injuries to the driver and passengers of the policyholder's car. At its broadest, PIP can cover medical payments, lost wages and the cost of replacing services normally performed by someone injured in an auto accident. It may also cover funeral costs.

3. Property Damage Liability

This coverage pays for damage you (or someone driving the car with your permission) may cause to someone else's property. Usually, this means damage to someone else's car, but it also includes damage to lamp posts, telephone poles, fences, buildings or other structures your car hit.

4. Collision

This coverage pays for damage to your car resulting from a collision with another car, object or as a result of flipping over. It also covers damage caused by potholes. Even if you are at fault for the accident, your collision coverage will reimburse you for the costs of repairing your car. If you're not at fault, your insurance company may try to recover the amount they paid you from the other driver's insurance company.

5. Comprehensive

This coverage reimburses you for loss due to theft or damage caused by something other than a collision with another car or object, such as fire, falling objects, missiles, explosion, earthquake, windstorm, hail, flood, vandalism, riot, or contact with animals such as birds or deer.

Comprehensive insurance will also reimburse you if your windshield is cracked or shattered.

6. Uninsured and Underinsured Motorist Coverage

This coverage will reimburse you, a member of your family, or a designated driver if one of you is hit by an uninsured or hit-and-run driver. This coverage will also protect you if you are hit as a pedestrian.

What if I lease a car?

Leasing companies facilitated the middle class man to purchase a car. The success of leasing companies in the consumer financing has prompted banks to come into the leasing business as well. In case of car lease, the vehicle is registered in the name of the Bank or leasing company and the original papers are also in the name of the Bank/company which are held by the bank or company in question. With most of the banks facilitating their customers with this financing convenience there are approximately 37 or more leasing companies to date working in the country with car leasing as one of their most important sources of profit. The cars being offered for finance or lease are usually Suzuki, Honda, Hyundai, Nissan, Toyota, and Daihatsu.

If you lease a car, you still need to buy your own auto insurance policy. The auto dealer or bank that is financing the car will require you to buy collision and comprehensive coverage. You'll need to buy these coverages in addition to the others that may be mandatory, such as auto liability insurance.

Collision covers the damage to the car from an accident with another automobile or object.

Comprehensive covers a loss that is caused by something other than a collision with another car or object, such as a fire or theft or collision with a deer.

How do I choose an insurance company?

Here are the main points to keep in mind when selecting an insurance company:


Not every company is licensed to operate.


Many companies sell insurance policies and prices vary greatly from one to another, so it really pays to shop around.

Financial Solidity

You buy insurance to protect you financially and provide peace of mind. Select a company that is likely to be financially sound for many years, by using ratings from independent rating agencies.


Your insurance company and its representatives should answer your questions and handle your claims fairly, efficiently and quickly.


You should feel comfortable with your insurance purchase. Make sure that the agent or company will be easy to reach if you have a question or need to file a claim.


The Car Financing through Banks is now not a big fad. Today almost every local or foreign bank is providing this facility for the easier access to the car purchase. Most of the banks offer car financing as opposed to leasing. The banks possessing surplus liquidity have found this to be an investment opportunity. As compared to individual loans a higher interest rate is charged on consumer financing which in turn is highly profitable for the banks. When banks finance a car for a consumer it is registered under his/her name and is in one way mortgaged to the bank as long as the consumer pays off the amount he/she owes to the bank within a specified period. Following is the description of the car finance schemes introduced by different banks under different names.











Islamic mode of financing is also another way to purchase a car. Meezan introduced the concept of car "Ijarah" which, according to their claim, is the first interest free car-financing based on Islamic financing mode of Ijarah or Islamic leasing.

This includes financing of brand new and used cars. Their procedure is such that all ownership-related risks, rights and liabilities lie with the Bank while all usage related risks lie with the user. Meezan Bank does not charge an application fee, an up front payment of insurance, advance rental or lease rental incase the vehicle is destroyed or stolen.

The basic purpose of all this financing whether through leasing companies or through banks is to extend the convenience of an easy life to every individual. Though the extra expenses which a consumer has to incur (processing fee, insurance rates, mark ups) need to be cut down, the improvement in this area of financing over a very short span of time is commendable.

Today people who own cars but are not insured must take prudent action and make sure that by investing in, they will save the future for themselves. The institutions should also realize the need and bring about such policies which could easily be adjustable and in convenience with the needs of the individuals.