Auto Insurance: Understanding Coverages For Financed Vehicles

When financing a car, you will need to show the lender proof of full coverage. This is because you do not technically own your vehicle—it is the property of your lender or lessor. If the vehicle is damaged or totaled, the lender needs to know that their investment is protected through physical damage coverage.

Full coverage usually provides you with liability and physical damage coverage (both comprehensive and collision). While every insurance company defines full coverage differently, it usually describes a combination of collision, comprehensive, and liability auto policies.

If you don't maintain full coverage, you will be violating the contract with your lender. This means they are legally allowed to cancel your auto loan and take your vehicle away from you.

Collision coverage

When you finance a vehicle, your lender will typically require you to carry full coverage insurance, which includes collision coverage, to protect their investment. This means that if you are in an accident and your vehicle is damaged, the collision coverage will pay for the repairs. If the vehicle is totaled, collision coverage will provide compensation to replace it. This is important because, without full coverage, you would still be responsible for paying off the loan even if your vehicle is no longer driveable.

While the requirements for collision coverage may vary depending on the lender and state, it is generally a necessary component of auto insurance for financed vehicles. By understanding the specifics of your lender's requirements and the coverages offered by different insurance providers, you can ensure that you have the necessary protection in the event of an accident.

Comprehensive coverage

When financing a car, you will need to show the lender proof of full coverage. Lenders require comprehensive and collision coverage to protect their investment in the car. Comprehensive coverage is defined as an optional coverage that protects against damage to your vehicle caused by non-collision events that are outside of your control. This includes theft, vandalism, glass and windshield damage, fire, accidents with animals, weather, or other acts of nature.

Comprehensive insurance pays for non-collision damage or loss. You can make a claim if your vehicle has been stolen or damaged by fire, vandalism, or extreme weather. Comprehensive coverage does not cover damages caused by hitting another vehicle or object. These incidents are covered under collision coverage. It will also not cover normal wear and tear on your vehicle.

The most comprehensive coverage will pay is based on the actual cash value of your vehicle. You will be responsible for paying your selected deductible.

Liability coverage

Understanding Liability Coverage

Property Damage Liability

This component of liability coverage takes care of the expenses related to damaging someone else's property in an accident. It includes repairs to the other driver's vehicle, providing a rental vehicle while their car is being repaired, fixing damage to buildings, fences, or other structures, and covering damage to personal property inside the vehicle. Additionally, property damage liability can extend to legal fees if you are sued for property damage.

Bodily Injury Liability

Bodily injury liability, on the other hand, focuses on the injuries sustained by another person due to the accident. It provides coverage for their medical expenses, rehabilitation, and legal costs if they decide to take legal action against you. It's important to note that states may have different requirements regarding who can file a bodily injury claim and the specific conditions under which it can be filed.

Minimum Requirements for Liability Coverage

Most states require liability insurance to legally drive a vehicle. However, the minimum coverage limits can vary from state to state. For example, in California, the minimum liability insurance requirements are currently set at $15,000 for injury/death to one person, $30,000 for injury/death to more than one person, and $5,000 for property damage. It's important to check the specific requirements for your state to ensure you have the appropriate level of coverage.

When it comes to financing a car, lenders typically require you to carry full coverage insurance, which includes liability coverage. This is because the lender has a financial stake in the vehicle, and they want to protect their investment. As such, you will likely need to maintain higher levels of liability coverage than the state minimum to satisfy the lender's requirements.

Customizing Your Liability Coverage

Underinsured and uninsured motorist coverage

Uninsured and underinsured motorist coverage can help pay for your expenses if you're injured in a car accident by a driver with no insurance or insufficient insurance. This includes medical expenses and repairs to your car. In some states, uninsured motorist coverage is mandatory, and it is highly recommended for all drivers. Even in states where it is not required, there is a risk of being involved in an accident with an uninsured driver. According to the Insurance Information Institute, nearly 13% of drivers countrywide don't have auto insurance, and in some states, this number is over 20%.

There are two types of uninsured motorist coverage: bodily injury and property damage. Uninsured motorist bodily injury coverage (UMBI) may pay medical bills for both you and your passengers, while uninsured motorist property damage coverage (UMPD) may pay for repairs to your vehicle. Underinsured motorist coverage is similar, with underinsured motorist bodily injury coverage (UIMBI) and underinsured motorist property damage coverage (UIMPD) providing protection when the at-fault driver's insurance is insufficient.

When filing an uninsured or underinsured motorist claim, it is important to remember that your insurance company will only pay your claim if the other driver was legally responsible for your damages or found to be at fault for the accident. It is also worth noting that uninsured motorist property damage coverage may not be applicable in hit-and-run incidents, and collision coverage may be needed to cover the damage to your vehicle in such cases.

Personal injury protection

PIP coverage includes reasonable medical costs, such as surgeries, medications, diagnostics (x-rays, CT scans), dental or eye treatments, prosthetic devices, and professional nursing care. It also covers rehabilitation therapy and lost income resulting from the accident. Additionally, PIP may cover the replacement of necessary services typically provided by the injured party, such as childcare or household maintenance, if they are unable to perform them due to their injuries.

The amount of PIP coverage available varies depending on the state and the insurance provider. For example, in Texas, insurance companies are required to offer a minimum of $2,500 in PIP coverage, while in New Jersey, the minimum required amount is $15,000. It is worth noting that PIP coverage typically has a per-person maximum, meaning there is a specific amount available per person if multiple individuals are injured in the same incident.

When filing a PIP claim, it is essential to include all relevant documentation, such as payment receipts, bills, and any other records that can support your claim. The reimbursement levels for different types of expenses may vary, with some expenses covered in full and others covered at a percentage. For example, in Texas, PIP covers 100% of ambulance services, medical treatment, and funeral costs, while it covers 80% of lost wages and caregiver expenses.

In summary, personal injury protection (PIP) is a valuable component of auto insurance that provides financial protection for medical expenses and lost income resulting from a car accident, regardless of fault. It is important to understand the specific requirements and coverage details in your state when considering PIP insurance.

Frequently asked questions