yes, you will need full coverage on a vehicle if you have a car loan.
To drive legally, you must have the minimum liability insurance coverage required by your state. But if you drive a financed car, your lender will require you to have liability insurance, collision insurance, and comprehensive insurance, often called “full coverage.”
here we’ll explain the insurance requirements for financed cars, so you know what kind of insurance coverage you need and how it works.
funded car insurance requirements
Most people don’t buy a car outright; They take out a loan to pay for it. that means the car remains the property of the lender until the loan is paid off.
Are there requirements for car loan insurance? Yes. The lender will want you to have full coverage auto insurance on the financed car to protect your investment.
Otherwise, if the car is damaged or totaled, the lender would have to get the money from you to repair or replace it, which is much more difficult than making the insurance company pay for it.
full coverage car insurance consists of the following:
- Liability Insurance: Pays for property damage and injuries to others in accidents you cause
- Collision Insurance: Pays for damage to your car regardless of who caused the accident
- comprehensive insurance: pays for damage to your car from floods, hail, fire, vandalism, falling objects or collisions with animals, and also covers theft
- $100,000 in liability injury coverage, the maximum payment per person for the medical bills of those you injure in an accident you cause
- $300,000 in accident liability injury coverage, the maximum paid for all people injured in an accident caused by you
- $100,000 property damage liability, pays to repair damage you cause to other cars and property
- Comprehensive and collision insurance, pays up to the actual cash value of your car to repair or replace your car, with a $500 deductible
how much does full coverage car insurance cost?
The average auto insurance rate for full coverage is $1,758 a year for the following, based on carinsurance.com’s rate analysis:
this is usually written like this: 100/300/100. Liability insurance is available at lower limits, such as 50/100/50, but lenders generally require the above limits.
however, what you pay will depend on your own driver profile (your age, driving record, type of car you drive, where you live) and each insurer will calculate your price differently based on those factors.
which is why comparing auto insurance is the best way to save money, as rates vary significantly between companies.
Do I need differential insurance on a financed car?
gap insurance helps bridge the gap between what you owe on a car being totaled and what your insurance coverage pays.
It is usually cheaper to buy gap insurance from your insurance company, rather than through the dealer.
The average differential insurance policy costs about $41 a year, according to analysis by carinsurance.com, compared to the $500 to $700 dealers typically charge.
gap insurance providers: which companies sell gap insurance?
what if you don’t have full coverage insurance on a financed car?
If you cancel required auto insurance coverages on a financed vehicle, you are in violation of your finance contract and may jeopardize your loan. In addition, the lender may place single interest coverage (forced insurance) on the vehicle and add the premium to the loan.
This type of coverage is expensive and provides no coverage for you, only the lender.
Do I need full coverage on a financed car if the car is used?
yes. If you’re financing a car, used or new, and you’re going to be making payments on it for some time, your auto insurance policy should be full coverage. And there’s a good chance your lender will take the decision away from you and simply require it.
That said, there are a couple of states where you can get away with not having full coverage, and you can always think of some hypothetical case where you could argue that you don’t need full coverage.
But talk to any responsible person on the planet, and most of them will tell you to get full coverage on a financed car, whether used or new.
You don’t want to be in the position where you buy any car, used or new, and trash it while you still have 42 payments left before it’s paid off. If it’s hard to make payments on a car you can no longer drive, then you should get full coverage, and again your lender may require you to be insured before you drive your car off the lot.
Read our expert’s recommendation on do I need full coverage on my new or used car?
Do different banks have different rules on car insurance for financed cars?
Usually not. Banks may differ a bit, depending on what state the bank is in, but as a general rule, most financial institutions will operate on the premise that if you are financing a car, your vehicle must be fully insured. p>
after all, until you pay off your car, it’s not really your car. It belongs to the lender who will be left hanging dry if the car payments are not made.
Your chances of voluntarily making payments on a totaled vehicle you can no longer drive are greatly diminished by the lender, and therefore most, if not all, financial institutions will insist that your financed car be fully insured before to drive it. outside the car lot.
Do states have different auto insurance rules for financed cars?
yes. In fact, each state regulates all insurance differently. There are no national standards for car insurance, or any type of insurance, like property insurance, for that matter. In fact, you can technically get away with not having any car insurance in Virginia and New Hampshire.
That said, Virginia and New Hampshire don’t exactly encourage their residents to drive without insurance.
for example, in virginia, if you don’t buy car insurance, you’ll have to pay an uninsured motor vehicle fee which, in spring 2022, is $500. and that’s $500 a year. you will pay it when you pay your vehicle registration fee. And of course, if you’re in an accident, you can decide if that $500 was well spent.
in new hampshire, they hardly ever set you free. You don’t have to buy car insurance, but if you don’t, you have to show that you can pay for the damage you do to someone’s car in an accident, and if you can’t prove it, you may not be allowed to drive.
So, for all practical purposes, in each state, there are different rules about car insurance for financed cars, but you’ll have to buy some form of car insurance.
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