Is car leasing/financing haram because it requires full insurance?

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Question
Salam, I was told it was required to get the lowest coverage insurance for my vehicle in Canada because insurance is haram. When leasing or financing a vehicle it is required to obtain full coverage insurance by the company leasing or financing the car to you.

Question #1 – Is obtaining full coverage insurance for this matter haram?
Question #2 – Is one not supposed to lease or finance vehicles due to this matter of being required to obtain full coverage insurance rather than basic coverage?

Answer
Alhamdulillah, wassalatu wassalamu ala rasulillah, wa ala alihi wa sahbihi ajma‘in.

Insurance in Principle

  • Conventional commercial insurance contracts contain gharar (excessive uncertainty), maysir (gambling), and riba (interest), which is why the International Islamic Fiqh Academy (OIC, 1985) and other fiqh councils ruled them impermissible.
  • The permissible alternative is takaful (cooperative insurance), wherever available.

Summary of Necessity Ruling

  • If the government only requires basic liability insurance, then a Muslim should not go beyond that.
  • However, when the government or a lien-holder (such as a leasing company) requires full coverage, then it is tolerated due to necessity.
  • This falls under the maxim: “What is overlooked as a secondary attachment is not overlooked as an independent purpose” (يغتفر في الشيء ضمن ما لا يغتفر فيه قصدا). Meaning: the main contract is for leasing or financing, and the insurance is only a legal requirement attached to it, not the purpose of the contract.

Application to Leasing and Financing in Canada

  1. On obtaining full coverage insurance:
    • If you own the car outright, you should only take the minimum insurance required by law.
    • But if you lease or finance a car, the law of Alberta (and Canadian provinces generally) requires that any vehicle under a lien must carry full coverage insurance. In this case, obtaining full coverage is permissible due to necessity, because it is not sought for itself but as a caveat of the contract.
  2. On leasing or financing itself:
    • Leasing or in-house financing can be permissible if the contract is free of riba (structured as a valid deferred sale or lease-to-own).
    • The condition of full insurance does not make the entire contract haram, since it is imposed by law and outside the buyer’s intention.
    • However, one should avoid riba-based financing through banks or interest-bearing contracts, as those are haram regardless of the insurance issue.

Final Ruling

  • Full coverage insurance: Not permissible in principle, but it becomes tolerated when legally mandated under a lien (lease or finance), since it is an attached condition and not the purpose of the contract.
  • Leasing/financing a vehicle: Permissible if the contract itself is halal (no riba), even though it obligates full coverage, because the insurance is a secondary legal requirement and not the essence of the deal.

And Allah knows best.

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