Do I Need Full Coverage When Financing a Car?

Full insurance coverage is required for leased or financed cars in most states and by most lenders. Although it is not a legal requirement, you may need it when financing a car.

Let us discuss what is the full coverage and when you need it.

What is Full Coverage Car Insurance?

Full coverage car insurance comprises different types of primary insurance plans. The term full coverage does not refer to a single insurance policy itself.

Some types of car insurance are primarily required by law in most states throughout the US. Then, there are some additional insurance types that car owners can use to build full coverage.

Minimum Insurance Coverage

The minimum insurance coverage is the liability car insurance plan. It is the basic insurance plan that is required for all types of cars.

Most states require a liability car insurance plan by law. Whether you buy a new or old car, the car is financed or leased, or you’ll need a liability car insurance plan.

The liability car insurance plan covers the medical costs and damages you cause to other drivers and passengers. It is the coverage for your liability towards others.

Liability coverage includes payments for injuries or deaths caused by you in car accidents. It also covers the property damages due to accidents on your behalf.

Liability coverage is the required or minimum insurance that is needed in almost every state.

Full Insurance Coverage

If you want to build full insurance coverage, you’ll need to purchase a few additional insurance plans on top of liability coverage.

Collision

Collision insurance covers damages to your car in case of an accident and you are at fault. It is additional insurance coverage that is optional for you.

Collision insurance covers road accidents, collisions with objects such as a pole or fence, and so on. However, it only covers damages caused to your own car and not to the other vehicle.

Collision coverage is mostly required by lenders when you buy a car through financing. Car dealers may also require collision coverage when you lease a car.

It is optional insurance for cars purchased in cash or used for a long time. You can choose the deductible limit and the insurance coverage limit.

Comprehensive

Comprehensive car insurance provides coverage to your car for damages caused by events other than accidents.

These incidents include weather events like storms, lightning, floodings, animal damage, fire, theft, etc.

In short, comprehensive insurance is the coverage for events that are out of the control of the car owner.

Uninsured Motorist

This type of insurance covers damages caused by road accidents and collisions with drivers who are uninsured or underinsured.

This insurance plan will protect you as the uninsured or underinsured driver’s plan may not provide full coverage for the damages.

GAP Insurance

It is particularly required for financed cars and it covers the gap between the market price and the outstanding loan amount.

GAP insurance will pay off the difference when the borrower has more to repay than the car market value after an accident or theft.

Do I Need Full Coverage When Financing a Car?

Yes, you’ll need full coverage when financing a car although it is not a legal requirement in any state.

Full coverage is often required by lenders to protect themselves as they own the car until the borrower repays the full amount with interest.

The minimum car insurance required by law covers the primary insurance damages like injuries and repairs. Comprehensive coverage protects both parties in an accident or collision and offers extensive protection.

A full car insurance coverage is required when:

• Buying a car through financing
• Leasing a car
• You have an expensive car
• You live and drive in a heavy traffic area
• You commute a lot through your car

Full coverage is not a suitable option for old cars with low market values. In such cases, the basic or primary insurance coverage would suffice.

Even when you purchase full coverage, you may need some additional insurance plans for enhanced protection.

How Much is Full Insurance Coverage Cost?

The total cost of the full insurance coverage will vary by state. Several factors affect the cost of full insurance plans.

Some key factors to consider when comparing the costs of different insurance plans include:

• The market value of your car
• Your driving license age and record
• Whether the car is financed or purchased with cash
• Your budget that sets your limits for deductibles
• Insurance premiums and types of insurance plans include

You can always shop around to compare different insurance plans for various categories required to complete the full insurance coverage.

What if I Don’t Have Full Coverage?

If you do not have full coverage for a financed car, you’ll violate the finance agreement.

Full coverage is not a statutory requirement in any state. Lenders like banks, credit unions, and car dealers require it for enhanced protection.

A financed or leased car is owned by the lender. Therefore, lenders want to minimize their liabilities and the requirement becomes an obligation for the borrower.

Apart from the finance agreement requirement, you should also consider your risk tolerance.

Even if you own a car, you should carefully evaluate the costs of damages and repairs in case of an unforeseen event. It is particularly important for expensive and new cars.

Also, consider that full coverage would cover the damages caused by you to other drivers, passengers, and properties.

When to Drop the Full Coverage on a Financed Car?

If your loan term for car financing is incomplete, you cannot drop your full coverage. The full coverage becomes part of the financing agreement and you’ll need to continue it until the finance term is completed.

When you repay the financed amount, you can remove or drop additional insurance covers as you like. Full coverage is not a legal requirement but it is required by lenders.

In other cases, if you own a fully purchased car, you may want to drop the insurance costs a bit. Consider the age of your car and its market value.

Also, consider if there is any damage caused to your old, can you afford to pay for the repairs by yourself?

Dropping the full coverage makes sense for old cars but you should not use this option for new or expensive cars.

Top Tips to Save Money on Your Car Insurance Coverage

The total cost of car insurance will vary by state and insurance provider. You can always compare different insurance providers to compare rates.

There are a few factors that change the cost of insurance coverage. So, here are a few tips for you to save money on your car insurance.

• Shop around and compare insurance rates offered by different providers.
• Many insurance providers offer different types of discounts on car insurance plans for specific categories, look out for the one that fits your needs.
• Consider increasing your deductible limit, it will lower your insurance premium.
• Keep a clean car driving record to reduce your insurance costs. By avoiding road collisions, speeding tickets, and accidents, you can reduce your insurance premiums.
• Insurance companies may consider your credit score as well. So, improving your credit score can help you reduce your insurance costs as well.

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