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- What is full-coverage car insurance?
- Do you need full coverage on a financed car?
- What happens if you don't have full coverage
- How to buy full-coverage insurance for a financed car
- How to change insurance after you pay off your car loan
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If you finance a car with an auto loan, most lenders will require you to purchase full-coverage car insurance. Full-coverage insurance, which typically includes collision and comprehensive insurance, protects your lender’s investment in your vehicle.
Every state sets minimum amounts of car insurance that all drivers must buy to legally operate a vehicle. But if your car is financed, you’ll probably have additional insurance requirements from your lender. Because many states only require liability insurance, which protects other drivers and their vehicles, lenders usually require drivers to purchase full-coverage insurance to protect the financed vehicle.
In this article, car insurance comparison and broker app Jerry breaks down the usual car insurance requirements for financed cars. We’ll look at what kind of insurance you need, what it covers, and how to manage your policy during and after your loan term.
What is full-coverage car insurance?
Full-coverage insurance typically includes collision, comprehensive, and liability insurance. Here’s what those types of insurance cover:
- Collision coverage pays for damage to your car caused by a collision with another vehicle or a stationary object
- Comprehensive coverage covers damage caused by events other than a collision, such as severe weather, theft, or vandalism
- Liability coverage pays for repairs and medical expenses for other drivers if you’re at fault in an accident
Sometimes included in full-coverage insurance are gap coverage and roadside assistance (also known as towing and labor coverage). Here’s how those work:
- Gap insurance covers the difference between what you owe on your loan and the actual value of your car if it’s totaled
- Roadside assistance provides towing, lockout services, fuel delivery, and more if your car has mechanical trouble on the road
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Do you need full coverage on a financed car?
If you’re financing a car with an auto loan, you’ll probably need full coverage, since it’s a requirement from most lenders.
Here’s why: most states only require liability coverage. Liability insurance won’t cover damage to your car, and it doesn’t cover accidents other than collisions. If you only carry liability insurance, your lender’s asset is left unprotected.
Let’s say a blizzard moves through your area and a tree falls on your car. Without comprehensive coverage, you’re forced to pay for the damages out of pocket. Now you can’t keep up with your loan payments and your lender loses money.
With collision and comprehensive insurance, on the other hand, your car is protected against accidents, vandalism, hurricanes, acts of God, theft, and more.
Full coverage also protects you from serious financial loss. When that blizzard leaves you with a shattered windshield, you won’t face a painful out-of-pocket repair bill. If your car is totaled and your policy includes gap insurance, you won’t be left paying off a huge loan.
Key Takeaway Lenders require full-coverage insurance because it protects their investment, but it protects you, too!
What happens if you don’t have full coverage on a financed car
Full-coverage insurance is a good idea even if your lender doesn’t require it—but it can be pricey. You may be tempted to skip out on full coverage and just go with the minimum requirements in your state to save money.
Don’t skip buying full-coverage insurance if your lender requires it. If your lender finds out that you didn’t purchase full coverage, you could face the following consequences:
- Most likely: Your lender will purchase full-coverage insurance on your behalf and add the cost to your loan payments. The policy your lender buys will probably cost a lot more than if you’d bought it yourself.
- Less likely, but possible: Your lender will cancel your loan. Although this is less common, your lender has the right to cancel the loan if you fail to meet the agreed requirements.
- Least likely: Your lender doesn’t find out.
Do not count on keeping your insurance secret from your lender. Full coverage is expensive, but it’s not as expensive as having your loan canceled or paying for an insurance policy someone else shopped for.
How to buy full-coverage insurance for a financed car
Finding full-coverage insurance at an affordable price isn’t impossible—it just requires smart comparison shopping. You’ll want to get quotes from several different carriers, search for discounts you may qualify for, and compare savings from various companies.
The average annual cost of full-coverage insurance is about $1500, but with help from a comparison shopping expert, you could find a rate well below that figure! All you need to do to find the lowest available rate on full-coverage insurance is download the Jerry app.
As a licensed broker, Jerry will connect you instantly to 50+ top insurance companies with competitive rates for full coverage. Once you’ve chosen your policy, Jerry handles all the paperwork to switch you over to your new rate.
Key Takeaway You can save money on full-coverage insurance for a financed car by downloading the Jerry app.
How to change insurance after you pay off your car loan
You must maintain full-coverage insurance for the duration of your loan term. Once you’ve paid off the loan in full, though, you get to decide whether or not to keep full coverage on your car.
In general, keeping full-coverage insurance is the best idea. Full coverage protects you and your vehicle from serious damages and financial losses, so it’s better to maintain it if you can afford it. If you live in an area with severe weather, frequent earthquakes or tornados, high crime rates, or other driving risks, keeping full coverage is a smart move.
However, you might consider dropping or reducing your full-coverage insurance if:
- Your car is older and has little value
- You don’t drive your car very often
- You can’t afford to pay for full coverage
If you’re considering a change to your insurance after paying off your loan, Jerry can help you find the best coverage at the lowest rate. Not only will Jerry comparison shop for you and fill out all the necessary paperwork, but they’ll even cancel your old policy so that you’re not paying for coverage you don’t need.
“After I bought my new car, the insurance companies tried charging me $315/month. Jerry, on the other hand, found me full coverage for only $220/month. Thank you!” —Mari E.
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