Do I Need Full Coverage On A Financed Car?

Is Full Coverage Required for a Financed Car?

If you are driving a financed car, you still need to have full coverage. This full auto insurance coverage needs to be maintained for the entire duration of the loan because it is required by lenders.

Full coverage essentially means that the lender is financially protected in case an accident happens that was the driver's fault (though you will still have to pay your deductible first).

One reason you need full coverage is that if you only have liability coverage for your financed vehicle, insurance companies actually will refuse to make a payment after you file a claim. However, full coverage means that the insurance company will pitch in to help out with your claim. 

If an accident occurs and your insurance company accepts the claim because you have full coverage, the check will be sent directly to your lender, who is listed as the lienholder on your car insurance policy.

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What Happens If You Don’t Get Full Coverage On A Financed Car?

Getting and maintaining full insurance coverage on any car you finance is critical. Full coverage auto insurance must be bought at the time you initially finance a vehicle.

This is a part of the contract with the lender, and it is very important that you have full coverage. If you don’t maintain full coverage and opt to downgrade coverage to simple liability insurance, you will be violating the contract with your lender (so long as you still owe money). 

If the contract with your lender is violated, it means that they are legally allowed to cancel your auto loan and take your vehicle away from you. 

Does Auto Insurance Go Down Once a Car Is Paid?

Your auto insurance does not technically go down just because your car has been fully paid for. The good news about paying your car loan off is that you will gain the flexibility of changing your car insurance coverage, such as downgrading it to something with a cheaper rate.

After paying off your entire car loan, you need to remember to contact your insurance company. That way, you can remove your lender as a lienholder of your car. This ensures that you can more quickly and conveniently make claims since any payments received will not get routed to your lender first. 

Insurance companies can make it complex for you to make informed decisions on what insurance you should get after your car loan has been paid off.

Pairing this with the struggles of paying off a car loan in the first place, it can make driving and shopping for insurance unnecessarily hard. Make sure you reach out to Worth Insurance so we can help you get fast and competitive car insurance quotes, ensuring that you are getting your money’s value. 

What Happens If You Get Into An Accident With A Financed Car?

It is natural to be worried if you get into an accident on the road while driving a financed car. As long as you have full coverage (which lenders require), you should be adequately insured in case of an accident.

Just in case you do end up in a car crash with your financed car, you should verify in advance that you have full coverage and an active policy. If you have been missing payments, your insurance company may have automatically cancelled your policy due to the lack of payment. 

If you do have insurance, it means that after you pay your deductible, your full coverage auto insurance will kick in and grant you financial assistance up to your policy limits. It will pay for damages and injuries that you may have caused to others, as well as potentially cover lawsuit expenses. 

For total losses of a financed car (i.e. the cost of repairs is greater than the determined value of your vehicle), you and your lender may end up with a payment equal to the actual cash value of the car. 

How to Get Auto Insurance for a Financed Car

Getting auto insurance for a financed car doesn’t have to be hard. You can shop for auto insurance with Worth Insurance. We offer you best value coverage plans and show you quick quotes without needing to use your credit card or waste unnecessary time.

Frequently Asked Questions

What is the difference between full coverage and liability coverage?

‍Full coverage typically includes liability coverage, collision coverage, and comprehensive coverage. If you're in an accident, liability coverage steps in to pay for any harm caused to other people or their property. Think of it as protection for others from you. On the other hand, collision coverage focuses on your vehicle. This coverage provides financial assistance for necessary repairs or replacement of your vehicle if it's damaged in an accident, no matter who caused the collision. Comprehensive coverage is designed to cover damages to your vehicle resulting from incidents other than collisions, such as theft, vandalism, or natural disasters.‍

How do I know if I have full coverage on my financed car?

‍You can check your insurance policy documents or contact your insurance company to confirm if you have full coverage on your financed car.

‍What are the consequences of not having full coverage on a financed car?

Failing to maintain comprehensive insurance coverage on a vehicle with an outstanding loan could lead to your lender exercising their right to terminate your financing agreement and repossess the car.

‍Can I get full coverage on a financed car if I have a poor driving record?

‍Yes, you can still get full coverage on a financed car with a poor driving record, but it may be more expensive.

‍How much does full coverage insurance cost for a financed car?

‍The cost of full coverage insurance for a financed car varies depending on several factors, including your driving record, the make and model of your car, and your location.

‍What factors affect the cost of full coverage insurance for a financed car?

‍Factors that can affect the cost of full coverage insurance for a financed car include your driving record, the make and model of your car, your location, your age, your gender, your credit score, and your insurance deductible.

‍Can I switch insurance companies if I have a financed car?

‍Yes, you can switch insurance companies if you have a financed car, but you'll need to make sure that your new insurance policy meets your lender's requirements.

‍What is gap insurance and do I need it for my financed car?

‍If your vehicle is financed, consider Guaranteed Asset Protection (GAP) insurance. This coverage bridges the financial gap between what your insurer pays for a totaled or stolen vehicle and the outstanding balance on your auto loan. GAP insurance is particularly beneficial when the amount owed on your loan exceeds the car's actual cash value, a common scenario with newer vehicles or those with minimal down payments.

‍What is the difference between collision and comprehensive coverage?

‍Think of your car insurance as having two shields:

• Collision coverage: This shield protects your car from impacts, like bumping into another vehicle or hitting a stationary object.
• Comprehensive coverage: This shield safeguards your car from the unexpected, such as theft, vandalism, hailstorms, or falling trees.

Essentially, collision coverage addresses damage from direct collisions, while comprehensive coverage handles damage caused by events outside of collisions.

‍What are some common exclusions to full coverage insurance policies?

‍Common exclusions to full coverage insurance policies include damages caused by intentional acts, damages caused by racing or off-road driving, and damages caused by wear and tear.

‍How can I get the best rates on full coverage insurance for my financed car?

‍You can get the best rates on full coverage insurance for your financed car by shopping around and comparing quotes from different insurance companies. You can also ask about discounts for things like having a good driving record, taking a defensive driving course, or bundling your insurance policies.

‍What are the benefits of having full coverage insurance on a financed car?

‍The benefits of having full coverage insurance on a financed car include peace of mind knowing that you're protected in case of an accident, meeting your lender's requirements, and potentially saving money on repairs or replacements.

‍How do I file a claim if I get into an accident with my financed car?

‍To file a claim, reach out to your insurance provider and share all the necessary information regarding the accident.

‍What should I do if my insurance company denies my claim?

‍If your insurance company denies your claim, you can ask them to reconsider their decision or file an appeal. You may also want to consult with an attorney.

‍How can I protect myself from lawsuits if I get into an accident with my financed car?

‍You can protect yourself from lawsuits by having adequate liability coverage and by driving safely and defensively.