Financed Vehicle: Essential Insurance Coverage

If you're buying a new car, you'll likely need a loan to cover the cost. This means that you don't own the vehicle outright and are borrowing from a lender to pay for it. As a result, you're considered a higher risk due to the debt, and most lenders will require you to have full coverage insurance on the vehicle to protect their investment. This typically includes comprehensive and collision coverage, as well as liability insurance, which is required in most states. In some cases, lenders may also require additional coverages, such as uninsured motorist coverage or gap insurance. Full coverage insurance for a financed vehicle can be more expensive than the state minimum liability insurance, but it's important to have to ensure you're protected financially in the event of an accident or damage to the car.

Comprehensive and collision coverage

When you finance a vehicle, you are usually required to buy full-coverage insurance, which combines comprehensive, collision, and liability insurance. This is to protect the lender's investment in the vehicle, which is their asset until you pay off the loan.

Comprehensive coverage pays for damage to your car caused by disasters other than collisions. This includes damage from natural disasters, theft, vandalism, fire, and weather-related issues. It also covers contact with animals and fallen objects, such as trees, branches, and ice. The average cost of comprehensive coverage is around $134 per year, significantly less than collision coverage.

Collision coverage pays for damage to your car resulting from a collision with an object or if your car flips over. It also covers damage caused by potholes. The average cost is about $290 per year. If you are at fault in an accident or your car is damaged from an incident beyond your control, collision coverage will pay for the damage, minus your deductible.

If your vehicle is paid off in full, you have the option to drop comprehensive and collision coverage. However, it is recommended to keep comprehensive and collision coverage unless your vehicle has a low market value or is not being driven.

Liability coverage

Liability insurance is mandated by most states as the minimum requirement for legally driving on public roads. However, it is important to note that liability coverage does not include repairs to your own vehicle in the event of an accident. For that, you would need collision insurance, which is typically included in full-coverage policies.

The specific liability coverage limits can vary by state and lender requirements. For example, a common structure for liability coverage limits is presented as a set of three numbers, such as 100/300/100. This means that the policy provides $100,000 per person in liability bodily injury coverage, up to a total of $300,000 in liability injury coverage per accident, and $100,000 in property damage coverage.

While liability insurance is a crucial component of full-coverage insurance, it is important to remember that it primarily protects others affected by your actions on the road. To ensure your own vehicle is covered in case of an accident or other incidents, you may want to consider additional types of insurance, such as collision and comprehensive coverage, which are also typically included in full-coverage policies.

Underinsured and uninsured motorist coverage

• Bodily injury coverage, which covers medical bills and may cover lost wages, pain and suffering, and funeral expenses.
• Property damage coverage, which covers the cost to repair or replace your vehicle, as well as any property inside the vehicle that may have been damaged. In some states, this may also include diminished value if your car is worth less after the accident.

If you are in an accident that wasn't your fault, and the at-fault driver doesn't have enough insurance to cover the costs of repairs to your vehicle or your medical bills, your underinsured or uninsured motorist coverage will kick in to cover the additional costs, up to the limit of your policy.

Who Needs Underinsured and Uninsured Motorist Coverage?

Anyone who drives may need this type of coverage. It is important to remember that not all drivers have insurance, and even if they do, it may not be sufficient to cover the costs of an accident. In these cases, underinsured and uninsured motorist coverage can provide financial protection.

The amount of coverage you can get will depend on your state's requirements and your insurance company's offerings. You can usually add more coverage in increments of $5,000, and it is recommended to add enough property damage coverage to replace your vehicle if it is totaled.

GAP insurance

When you finance a vehicle, you are required to purchase full-coverage car insurance to protect your lienholder's investment. This includes liability, collision, and comprehensive insurance. However, there is another type of insurance that you may want to consider when financing a vehicle: Guaranteed Auto Protection (GAP) insurance.

While GAP insurance can be purchased from car dealerships, it is often much less expensive to purchase it through your insurance provider. It is important to note that GAP insurance is not required and can be declined if automatically added to your loan by a dealership.

Personal injury protection

PIP insurance covers the cost of treatment received from hospitals, doctors, and other medical providers, as well as any necessary medical equipment. It can also provide reimbursement for other expenses incurred as a result of the accident, such as lost wages, funeral and death benefits, and the cost of hiring someone to take care of your home or family. In some states, such as New Jersey, PIP insurance is mandatory for all drivers.

When financing a vehicle, it is important to remember that the lender will require you to carry full coverage insurance to protect their investment. This typically includes liability insurance, collision insurance, and comprehensive insurance. However, adding PIP insurance as an optional coverage can provide additional financial protection in the event of an accident.

While the requirements for PIP coverage vary from state to state, it is generally a valuable addition to your insurance policy, especially if you are financing a vehicle. It ensures that you and your passengers are covered for medical expenses and lost wages, regardless of who is at fault in the accident. This can provide peace of mind and financial security in the event of an unforeseen incident.

It is important to carefully review the details of your financing agreement and understand the specific insurance requirements of your lender. By adding PIP coverage to your policy, you can ensure that you have adequate protection in the event of a car accident, protecting both yourself and your investment.

Frequently asked questions