Auto Insurance: What You Need To Know For Financing

When financing a car, you will need to show the lender proof of full coverage. This is because the lender owns the vehicle until you have paid off your loan, and they want to protect their investment. Therefore, lenders require comprehensive and collision coverage, as well as liability coverage, which is required in most states. The cost of car insurance for a financed vehicle will depend on various factors, such as your location, the make and model of the car, and your personal risk factors.

Collision insurance

When taking out a loan to finance a vehicle, banks and lenders will usually require a full-coverage auto insurance policy. This is to protect their asset, the vehicle, which secures the loan in the event of default. This full-coverage policy typically combines comprehensive, collision, and liability insurance.

The benefits of collision insurance are significant. It provides peace of mind, knowing your car is covered in the event of an accident. You can avoid paying out of pocket for repairs above the cost of your deductible. Additionally, collision insurance provides coverage for your loss when your damaged vehicle is deemed a total loss. In some cases, with additional coverage, you may pay nothing at all for repairing or replacing your vehicle.

When choosing collision insurance, it's important to consider the cost of your car and its potential repair costs. A higher collision deductible will lower your monthly premium, but it also means you'll cover more of the repair costs when needed. On the other hand, a lower deductible results in a higher monthly premium but offers better protection in the event of an accident.

Comprehensive insurance

When taking out a loan to buy a vehicle, banks and lenders usually require a full-coverage insurance policy that combines comprehensive, collision, and liability insurance. Comprehensive insurance is optional coverage that protects your vehicle from damage caused by non-collision events outside your control, such as theft, vandalism, fire, and weather. While not required by law in any state, lenders typically mandate comprehensive insurance when you finance or lease a car.

The cost of comprehensive insurance varies depending on factors such as age, driving record, vehicle type, state, deductible, and coverage limit. On average, comprehensive insurance costs around $80 per month in the United States.

When deciding whether to add comprehensive insurance to your policy, consider the value of your car and your financial circumstances. If your vehicle has a high cash value or you cannot afford repairs or replacement costs, comprehensive insurance is a smart choice. It provides peace of mind, ensuring your car is protected in various scenarios.

Liability insurance

When financing a car, lenders typically require borrowers to carry full coverage insurance, which includes liability insurance and other types of coverage such as collision and comprehensive insurance. Full coverage insurance protects the lender's investment in the vehicle and ensures that it can be repaired or replaced if damaged or destroyed. It is important to review the specific requirements of the lender before purchasing insurance for a financed car.

The cost of liability insurance can vary depending on the state and the coverage limits selected. It is recommended to consult with an insurance agent to determine the appropriate coverage amounts and ensure compliance with state requirements.

In summary, liability insurance is a crucial component of auto insurance, especially when financing a vehicle. It protects the policyholder from financial losses in the event of an accident and ensures compliance with legal and lender requirements.

GAP insurance

When you buy a new car, it starts to depreciate in value as soon as you drive it off the lot. Standard auto insurance policies cover the depreciated value of a car, which means that in the event of an accident or theft, your insurance company will only pay you the current market value of the vehicle. This can leave a gap between the amount you are paid by your insurance and the amount you still owe on your auto loan.

Guaranteed Asset Protection (GAP) insurance covers this difference. If your car is written off or stolen, GAP insurance will pay off your remaining loan balance, protecting you from financial loss. GAP insurance is available for new or used vehicles, including cars, SUVs, pickup trucks, motorcycles, ATVs, and snowmobiles.

In California, new laws have been introduced to place limits on the sale of GAP waivers, including restricting the price, adding disclosure requirements, banning sales in certain instances, and prohibiting the financing of GAP insurance in auto loans to servicemembers.

Personal injury protection

• Medical and hospital expenses: PIP covers reasonable and necessary medical and hospital expenses for each person injured in an auto accident, up to a certain limit.
• Funeral expenses: PIP includes coverage for funeral expenses in the event of a fatality due to the accident.
• Wage loss: PIP provides income replacement coverage for a limited time if you're unable to work due to injuries from the accident.
• Loss of services: PIP can help pay for non-family members to perform tasks or services you would normally do, such as household chores.

It's important to note that PIP doesn't cover everything. It typically doesn't cover damage to your vehicle, theft of your vehicle, or damage to someone else's property. Additionally, there may be specific situations where PIP doesn't apply, such as if you're injured while committing a crime or receiving payment for driving.

The cost of PIP coverage varies with each insurance company, and it may be required to cover all the vehicles listed on your policy. It is recommended to check with your insurance company or agent if you wish to increase your PIP coverage amounts.

Frequently asked questions