Q: Is it permissible to purchase car insurance in installments due to necessity when one cannot afford a one off payment. installments also have an added interest charge per month. For example: a one off payment will cost 1000 pounds and in 12 installments it’ll cost 1200 pounds. As insurance contains elements of interest could this be considered to be an extension of that interest which could be deemed permissible out of necessity. There is also another possibility i have come across on a website: http://www.moneysupermarket.com/c/news/the-best-way-to-pay-for-car-insurance/0013195/ Would it be permissible to opt for this option.
الجواب حامدا ومصليا ومسلما ومنه الصدق والصواب
A: Conventional insurance is a commutative contract that involves elements of riba, uncertainty and maysir. Hence, one can only take out conventional insurance when it is a legal requirement or a necessity and there is no permissible alternative. It also follows that one should spend only what is necessary to meet the legal requirement or the necessity. Therefore, if one is able to afford the full year’s premium, which tends to be less than payment by instalments, then one should pay for the full year up front so that one spends only that which is necessary to meet the legal requirement or the necessity. However, if one is unable to afford payment for the full year up front, one may pay in the instalments [bi-annually, quarterly, monthly] that one can afford even if such payments include a calculation of interest and this increases the cost of the insurance. Effectively what happens is that the insurance company treats the instalment payments as a loan to you and charges interest upon it [probably due to the opportunity cost it bears]. It may also add fees to factor in the costs of increased administrative expenses of generating and processing multiple payments, the risk that the customer may stop paying midterm and simply because it can. This results in a higher overall premium. However, once one chooses a particular payment schedule the resultant final premium is the cost of insurance irrespective as to how the premium was calculated. However, when paying in instalments there is likely to be a penalty clause in the event of delayed or non-payment. Therefore, when paying in instalments, one must also ensure that one will not miss any instalments. If one uses a purchase credit card which offers a generous initial interest-free period, as suggested at the link provided: http://www.moneysupermarket.com/c/news/the-best-way-to-pay-for-car-insurance/0013195/ and is assured of paying off the borrowed amount before any interest is incurred, then it would appear that this too is permissible when there is a real need. If one is able to simultaneously set up a direct debit or standing order to pay off the borrowed amount before any interest is incurred and one has or is assured of having the funds to do so, then this may be used as a measure to pay off the full amount for the insurance even if there is no pressing need.