I wanted to know if it is permissible to pay car insurance with interest money.
As a general rule, no Muslim by his free choice should invest or deposit his/her money in an interest-bearing scheme or account.
If a Muslim has deposited his money in an interest-bearing account for any reason, or the interest has come to his account without his choice or intention, he should not take this money; rather give it back to the payer of interest.
However, in non-Muslim countries, it is permissible to take this interest money with a clear intention that one will NOT use this amount for personal needs and benefits. It will be necessary to give this amount of interest money in charity to those poor people who are eligible to receive Zakat. This is not the normal Charity (Sadaqah) which a Muslim gives out of his lawful income with an intention to receive reward in the hereafter. Instead, this charity is meant only for disposing off unclean and unlawful money, and to relieve oneself from the burden of impure money.
It should be remarked here, that this amount of interest is only impure and unclean for the person who has received it as interest. The poor people who will receive this money in charity can use it for personal benefits and needs. (See: Contemporary Fatawa by Shaykh Mufti Taqi Usmani, P.242).
In the light of the above explanation, it becomes quite clear that interest money can NOT be used to pay for car insurance. One must not use this money for any personal benefits; rather dispose off it by giving it to the poor in charity.
And Allah Knows Best
[Mufti] Muhammad ibn Adam
Leicester , UK