Car Insurance From Your Bank: Compulsory on a HP Loan?

Section 26(3). One line in the Hire-Purchase Act 1967 settles most of this: "An owner shall not require a hirer to insure any risks with any particular registered insurer." In the Act's vocabulary, the owner is your bank and the hirer is you.

Short answer: yes, a car on hire purchase must stay insured, and your bank's agreement will ask for comprehensive cover. No, you do not have to buy that cover from the bank, the dealer or their panel. People often treat these as one question, and a salesperson has no reason to separate them for you.

Still working out how to pay for the car? Banks cap the age of the used cars they will finance (BSN's limit is 9 years from manufacture), and past that a personal loan is the usual fallback. It normally costs more than hire purchase. RinggitPlus lists personal loans from several banks on one page, and checking is free.

Required, preferred, or your call

Source: Hire-Purchase Act 1967 (Act 212), section 26; Public Bank, Maybank and BSN hire purchase product disclosure sheets. All read 13 September 2026. Your own agreement is the final word on your cover requirements.

Thinking of skipping hire purchase altogether? With a personal loan the bank never becomes the car's owner, so section 26 does not apply. Third-party cover is still the legal minimum under the Road Transport Act. The trade-off is the rate: personal loans usually cost more than hire purchase, so compare before choosing that route.

Why the bank gets a say in your cover

Until the last instalment, the car is not fully yours. The Act calls the bank the "owner" and you the "hirer" for that reason. If the car is stolen or written off, the asset securing the bank's money disappears.

That stake is what insurers call an insurable interest: a real financial loss if the car is damaged. It is why the agreement asks for comprehensive cover rather than the third-party minimum, and why Public Bank sets its minimum sum insured at the amount financed or 85% of the purchase price, whichever is higher.

The interest is legitimate. It gives the bank the right to insist that the car is covered, and covered properly. It does not give the bank the right to pick the insurer, and section 26(3) says so plainly. For the cover itself (NCD, betterment, flood riders), our car insurance comparison walks through what to buy.

Where bundling turns into tied selling

Offering you a policy is fine. Bank Negara's policy document on prohibited business conduct says a bank is not breaking the rules when it sells a combination of products and you have the option to buy them separately.

Making the policy a condition is not. Schedule 7 of the Financial Services Act 2013, mirrored in the Islamic Financial Services Act 2013, lists as prohibited conduct "exerting undue pressure on, or coercing, a financial consumer to acquire any financial service or product as a condition for acquiring another financial service or product."

Bank Negara is specific about panels. Its Product Transparency and Disclosure policy (2 December 2024) says a bank "shall inform financial consumers that they are not obliged to purchase any insurance/takaful coverage from the FSP's panel of insurers/takaful operators", and may not buy a policy from its panel on your behalf without your written consent. A footnote in the 2016 prohibited-conduct document adds that the consumer "must be allowed to use the service of non-panel insurers or takaful operators if they choose to do so."

The lenders' own trade body agrees. Asked "Can my financier insist that I insure with an insurance company on its panel?", the Association of Hire Purchase Companies Malaysia answers: "You can either insure with an insurance company on the panel of your financier or an insurance company of your choice."

One more clause worth knowing. If the bank also acts as an insurer's agent and receives a commission or rebate on your policy beyond legitimate agency commission, section 26(8) says you, the hirer, are entitled to the benefit of it.

Year one versus year two: who arranges what

Year one is the bank's job. Section 26(1)(a) says the owner "shall cause to be insured in the name of the hirer" a motor vehicle "for the first year only". That helps explain why the first policy often comes with the loan paperwork, and why Public Bank's disclosure sheet speaks of insurance "in respect of the first year only".

You still have rights over that first policy. Section 26(7) makes the first-year premium part of the hire-purchase price. Section 4C says the agreement must show any insurance amount included in the total, and section 5(3) says the bank must give you the payment receipt and, within seven days of receiving the policy, a copy of it or its terms. Section 26(3) applies to this policy too, so you can ask which insurer is being used and bring a quote of your own.

From year two, the duty moves to you. Section 26(2) makes it your responsibility to insure the car for every later year it stays on hire purchase. Maybank's conventional disclosure sheet asks for comprehensive cover "for the entire tenure", and BSN's says the same.

Islamic hire purchase adds one layer. Maybank's AITAB disclosure sheet says takaful "should be the first option", with conventional insurance allowed if no takaful is available, if every takaful operator rejects the car, or if insurance is "significantly more competitive" on cost. It recommends its panel takaful operators "or other Takaful operators approved by the Bank". Read that as a recommendation, not a single-supplier rule. Weighing the financing side of this? Our best car loan guide compares the banks.

Switching insurer mid-loan without upsetting the bank

Nothing in section 26 stops you from switching. What the Act and your agreement care about is that cover never lapses and meets the terms. Renewal day is the cleanest point to switch, because you avoid cancelling a policy part-way through.

1. Find your requirement. Check your agreement or disclosure sheet for the cover type and minimum sum insured. For Islamic financing, check whether takaful is required first.
2. Get two or three quotes for comprehensive cover at or above that sum insured, including your current insurer's renewal price.
3. Tell the new insurer the car is on hire purchase and give the financing bank's name exactly as it appears on your agreement. Look at your current cover note to see how the bank is shown there, and ask for the same on the new policy.
4. Send the bank proof of the new cover at least 14 days before the old policy expires, as section 26(5) requires. A copy of the cover note or policy schedule is the practical proof.
5. Keep the acknowledgement. Otherwise the bank may treat the car as uninsured and arrange cover itself.

One gap we could not close: none of the three banks' public disclosure sheets names the document they want or the exact wording for the bank's interest on the policy. Ask your bank's hire purchase centre before renewal day, not after.

If you are moving the loan itself to a new lender, the policy needs updating as well. Our refinance vs top-up guide covers that case.

What actually goes wrong if the cover lapses

• You commit an offence under the Hire-Purchase Act. Section 26(4) makes it an offence for a hirer to fail the section 26(2) duty.
• The bank can insure the car and bill you. Section 26(6) lets the owner "cause the motor vehicle to be insured and any costs thereby incurred shall be borne by the hirer". You lose the choice of insurer and the chance to compare prices.
• You are breaking road law. Section 90 of the Road Transport Act 1987 makes it an offence to use a car without at least third-party cover.
• You carry the loss yourself. Maybank's AITAB disclosure sheet says a customer who does not take the required takaful "shall indemnify the Bank for any loss or damage to the vehicle". An uninsured write-off leaves no payout to set against what you still owe.

None of this is a loophole to play with. Your freedom is over which insurer you use. Whether to insure is not up to you, and the agreement you signed is binding.

Verdict: keep the cover, pick the insurer

Our pick: meet the agreement's cover requirement, and choose the insurer yourself at every renewal. Treat the bank's or dealer's quote as one quote among several. Section 26(3) means the panel has to win on price and service, not on being the default.

Take the panel quote if it matches or beats your other quotes for the same sum insured and cover, or if you are on Islamic financing and the panel takaful operator is the most competitive. Go elsewhere if a direct or comparison-site quote gives the same cover for less, and send the bank its proof on time.

Still deciding how to finance the car? Hire purchase is usually the cheaper route for a car a bank will finance. For the cases it will not, such as an older car, compare personal loans before accepting the first offer. RinggitPlus shows offers from several banks side by side, and checking is free.

Ready to shop the policy itself? Start with our comparison of Malaysian comprehensive cover.

Sources we read

• Hire-Purchase Act 1967 (Act 212), sections 4C, 5(3) and 26, AGC online reprint as at 1 May 2019. The Hire-Purchase (Amendment) Act 2026 (Act A1783) leaves section 26 unchanged.
• Financial Services Act 2013 (Act 758, section 124 and Schedule 7 paragraph 5) and Islamic Financial Services Act 2013 (Act 759, section 136 and Schedule 7 paragraph 5).
• Bank Negara Malaysia, Prohibited Business Conduct policy document (15 July 2016), paragraph 11 and footnote 5.
• Bank Negara Malaysia, Product Transparency and Disclosure policy document (2 December 2024), S 1.1.8.
• Road Transport Act 1987 (Act 333), section 90.
• Association of Hire Purchase Companies Malaysia, Guide to Hire Purchase, question 10.
• Public Bank Hire Purchase product disclosure sheet and vehicle financing page.
• Maybank Hire Purchase and Hire Purchase-i (AITAB) product disclosure sheets.
• BSN MyAuto-i MPO product disclosure sheet.

Last updated: September 2026. Statutes and bank disclosure sheets read on 13 September 2026. This is general information, not legal advice. Your own hire purchase agreement governs your cover.