Your lender could cancel your loan
Although it’s more likely that your lender will take out force-placed insurance on your behalf, they will have legal standing to cancel your loan if you don’t carry the required coverage on your financed car.
If that happens, your vehicle could be seized and your credit score could take a major hit.
You could be under-protected if your car is damaged
Even if your lender didn’t take any action based on your insurance status, carrying only your state’s minimum liability insurance—or driving uninsured
—leaves you seriously vulnerable if you get into an accident or the car is otherwise damaged. According to the Insurance Information Institute, the average collision insurance claim in 2022 was $5,992 and the average comprehensive claim was $2,738. So if your vehicle was damaged and you didn’t have full coverage, you could face thousands of dollars in vehicle repairs.
FAQs
What happens if I don’t get full coverage?
If you don’t have full coverage on your vehicle, you’ll have to pay to repair or replace it yourself if it’s damaged. Also, if your car is financed, your lender might purchase force-placed insurance for you, or they could even repossess your car.
Why does a financed car have to be fully insured?
You need full coverage on a financed vehicle because it helps cover a wide range of damages—so paying to repair or replace your car won’t fall on you or the lender to handle out-of-pocket.
What does full coverage mean on a financed car?
Full coverage typically means liability insurance, collision insurance, and comprehensive insurance, although some lenders will also require you to carry gap coverage and/or mechanical breakdown insurance (MBI).
What is the difference between a financed car and a car that is paid off?
A financed car is one that you are currently making auto loan or lease payments on. Once you completely satisfy your loan requirements, you have a paid-off car.
What is the cost of full coverage on a financed car?
The cost of a full coverage auto insurance policy varies widely, depending on factors like your driving record, your age, where you live, the car you drive, your coverage limits, the insurance provider you choose, and more.
Can I drop full coverage on a paid-off car?
Yes, if you’re not required to carry full coverage by a lender, you can drop it from your car insurance policy. But it may be a smarter investment to keep full coverage in case of an accident—especially if it’s still a relatively new car with a high value.
How do I get rid of force-placed insurance?
If you purchase insurance that meets your lender’s requirements, you can send them proof of coverage and they should remove the force-placed insurance.