Auto Insurance: Understanding Bank Requirements For Car Loans

If you're buying a new car, you'll likely need an auto loan to finance it. Banks and lenders usually require a full-coverage insurance policy for financed cars, which combines comprehensive, collision, and liability insurance. This protects the bank's asset, which is the vehicle, and ensures the loan is covered in case of default. While the specific requirements may vary, full coverage typically includes collision and comprehensive insurance, and liability coverage for property damage and medical expenses.

In the US, the average cost of full-coverage insurance is $1,494 per year, compared to $588 for state minimum insurance.

Banks require full coverage insurance for financed cars

Banks and lenders require borrowers to have a minimum level of auto insurance for financed cars. This is usually a full-coverage policy that combines comprehensive, collision, and liability insurance. This allows the financing company to protect its asset, the vehicle, which secures the loan in case of default.

Full-coverage insurance is a combination of collision, comprehensive, and liability auto policies. While the definition of full coverage varies across insurance companies, it usually includes the following:

• Collision insurance: This pays for damage to your own vehicle, regardless of who caused the accident. Collision coverage typically requires a deductible, which is the amount you pay out of pocket before insurance coverage kicks in.
• Comprehensive insurance: This covers non-collision damage or loss, such as theft, fire, vandalism, or extreme weather damage. Like collision insurance, comprehensive insurance also usually has a deductible.
• Liability insurance: This covers damage and medical expenses for other individuals affected if you cause an accident. Most states require liability insurance, but the specific requirements vary.

In addition to these core components, full-coverage insurance may also include other types of coverage, such as:

• Underinsured and uninsured motorist coverage: This pays for damages if you're in an accident with a driver who doesn't have enough insurance or no insurance at all.
• Personal injury protection (PIP) insurance: This covers your own medical costs after an at-fault accident, including medical expenses, lost wages, and funeral costs.

The cost of full-coverage insurance varies depending on factors such as your driving record, location, and the value of your vehicle. On average, the annual cost of full-coverage insurance is around $1,500 to $1,800, but it can be significantly higher or lower depending on your specific circumstances.

It's important to carefully review the lender's requirements before purchasing insurance to ensure you comply with all the terms. For example, some banks may require a deductible of no higher than $500 on your policy.

This includes comprehensive, collision, and liability insurance

Banks and lenders require a minimum coverage policy for a financed car, which is usually a full-coverage policy that includes comprehensive, collision, and liability insurance. This combination of insurance policies is designed to protect the financing company's asset, which is the vehicle that secures the loan in the event of default.

Comprehensive insurance covers damage to your vehicle caused by events that are not collision-related, such as theft, vandalism, or natural disasters like hail. It also covers damage caused by falling objects, animals, or fire. This type of insurance typically requires a deductible, which is the amount you must pay before the insurance company covers the rest.

Collision insurance, on the other hand, covers damage to your vehicle in the event of a collision with another vehicle or a stationary object. It also includes repairs or a full replacement of your vehicle, regardless of who is at fault in the accident. Like comprehensive insurance, collision insurance usually comes with a deductible that you must pay before the insurance company covers the remaining costs.

Liability insurance is the minimum insurance required by most states. It covers damage and medical expenses for other individuals involved in an accident if you are at fault. Liability insurance does not cover damage to your own vehicle, which is where collision and comprehensive insurance come into play.

The average cost of full coverage insurance is $1,494 per year

Banks and lenders require a minimum coverage for a financed car, which is usually a full-coverage policy that combines comprehensive, collision, and liability insurance. This policy allows the financing company to protect its asset, the vehicle, which secures the loan in case of default.

While every insurance company defines full coverage differently, it usually describes a combination of collision, comprehensive, and liability auto policies. Most states only require liability insurance, which pays for damage and medical expenses for other affected individuals if you cause an accident. Collision insurance pays for damage to your own vehicle, regardless of who caused the accident. Comprehensive insurance pays for non-collision damage or loss, such as your vehicle being stolen or damaged by fire, vandalism, or extreme weather.

• Collision and comprehensive coverage with a deductible of $500
• $100,000 in bodily injury coverage per person for at-fault liability
• $300,000 in bodily injury coverage per accident for at-fault liability
• $100,000 in property damage coverage for at-fault liability

The average premium cost of $954.99 includes $299.73 for collision coverage, $138.87 for comprehensive coverage, and $516.39 for liability coverage.

While full coverage insurance costs more than your state's minimum required coverage, there are strategies to save money on your premium. These include getting quotes from various insurers, the town and state where you live, and the way you pay for coverage. You can often save money by paying the full amount upfront instead of making monthly or periodic payments. Many insurance providers also offer electronic funds transfer discounts when you arrange automatic bank transfers.

If you have more than one vehicle in your household, you can typically save money by bundling your policies with the same insurance company. You can also save by bundling your auto insurance with a homeowner's or renter's insurance policy.

Maintaining a safe driving record is another way to keep the cost of your auto policy low. Your premium will increase by varying amounts after incidents such as speeding, an at-fault accident claim, reckless driving, a DUI, or racing another vehicle.

You might also be able to save with a telematics program, which tracks your driving behavior and adjusts your insurance rates accordingly. According to The Zebra, you can save up to 30% with RightTrack from Liberty Mutual, up to 40% with SmartRide from Nationwide, up to 15% with Drive Safe & Safe from State Farm, up to 25% with Drivewise from Allstate, and up to $130 with SnapShot from Progressive.

The average monthly premium is $80

The average monthly premium for car insurance is $80 for full coverage. This is a relatively affordable option, especially when compared to the average annual premium of $1,494 for full coverage, and $588 for state minimum insurance.

Full coverage car insurance is often required by banks and lenders for financed cars. This is because full coverage insurance combines comprehensive, collision, and liability insurance, which allows the financing company to protect its asset (the vehicle) in the case of an accident or default. While the specific requirements may vary by bank, full coverage insurance is generally required for financed cars.

The cost of car insurance for a financed vehicle will depend on various factors, including the value of the car, the interest rate on the loan, and the insurance company. It's important to shop around and compare quotes from different insurance providers to find the best rate for your needs. Additionally, there are ways to save on auto insurance for financed vehicles, such as by increasing deductibles, driving safely, and taking advantage of discounts offered by insurance companies.

You can save money on full coverage insurance by paying upfront

Banks and lenders require minimum coverage for a financed car, usually in the form of a full-coverage policy that combines comprehensive, collision, and liability insurance. While every insurance company defines full coverage differently, it usually describes a combination of collision, comprehensive, and liability auto policies.

Full coverage insurance costs more than your state's minimum liability insurance, but you can still use strategies to save money on your premium. One way to do this is by paying upfront. If you pay your car insurance in full upfront, you will not need to put down additional securities. Paying in full could help you lock in a "pay in full" discount, but the upfront cost might be difficult to pay all at once. In 2021, drivers who paid premiums in full saved about 4.7% on average.

If you decide to pay upfront, you will need to prove that you are able to pay, or you will have no coverage. You will also need to pay a down payment, which is a prepayment for your policy. The down payment depends on your rate, policy, and insurance company. In most cases, you will have to put down one to two months' worth of premium to begin your policy. The higher your risk to the insurer, the more money they will ask for upfront.

Frequently asked questions