Financed Car Insurance – All You Need to Know
Key Takeaways:
Do you plan to lease or finance a new or used car? Check with your dealer and insurance company about their specific financed car insurance requirements.Shopping around for the best insurance for financed cars can save you money on the full coverage insurance required by most lenders.If you choose to stop coverage before your loan is paid off, your lender can buy a car insurance policy on your behalf and add the premium to your monthly payments – this is called forced insurance.
If you’re financing a car or truck, your new lender will have requirements meant to protect their investment. Whether your vehicle is involved in an accident, the car is stolen, or damaged due to extreme weather, your finance company will want to ensure that the vehicle can be repaired or, in the event of a total loss, paid off. Financed car insurance will protect both you and your lender.
Navigating the world of financed car insurance can be confusing and even overwhelming. This guide will provide you with all the information you need to make an informed decision about your coverage options.
Understanding the Basics of Financed Car Insurance
Before diving into the specifics of financed car insurance requirements, it’s important to understand the basics. Financed car insurance is a type of auto insurance that is required by lenders when you finance a vehicle.
It provides coverage for damage or injuries that may occur in the event of an accident or other covered event, such as theft, vandalism, or hail damage. The amount of coverage required may vary depending on the lender and the state you live in.
It’s important to shop around and compare quotes from different insurance providers to ensure you’re getting the best coverage at the best price. We’ll talk more about that a little later.
Are You Obligated to Comply with Financed Car Insurance Rules?
You are typically required under auto loan/lease agreements to maintain any necessary coverage up until your loan amount is repaid. Usually, when applying for a loan, the lender will want to see your proof of insurance before your loan is even approved.
If you opt to discontinue coverage before your loan is paid off, your lender is within their rights to obtain insurance on your behalf and include the cost of the policy in your monthly loan payments. When this happens, it’s referred to as forced insurance.
Determining Your Minimum Coverage for Financed Car Insurance
When it comes to financed car insurance, it’s important to determine your coverage needs before selecting a policy. This includes considering factors such as the value of your vehicle, your driving habits, and your budget. You may also want to consider additional coverage options such as personal injury protection coverage, gap coverage, and uninsured/underinsured motorist coverage.
It’s important to work with a reputable insurance provider who can help guide you through the process and ensure you have the right coverage for your needs. But first, let’s look at the types of financed car insurance coverage available and then we will discuss what you need to provide and what you can do to save money.
Types Of Car Insurance Coverage
Car insurance coverage can vary depending on the insurance provider and the specific policy. However, here are some common types of car insurance coverage that all carriers agree upon —
Liability Coverage
This is the most basic form of car insurance coverage and it’s mandatory in almost all fifty states whether your car is financed, or you own it outright (check your state insurance guide here). Liability insurance doesn’t protect your car — it is intended to protect other people’s vehicles or property in the event of a collision or accident.
People with older vehicles (that are debt-free) will often opt for liability insurance to save money when their car’s value is very low.
Liability insurance includes two types of basic coverage:
Bodily Injury Liability — When you are at fault in an accident, bodily injury liability is auto insurance that covers the medical costs and lost income of other people. Additionally, it helps to pay for legal fees if you are held liable for damages.
However, you and your passenger’s medical expenses are not covered, nor are repairs for damage to your car or other items of property. Most insurance companies suggest coverage limits of $300,000 per occurrence (accident) and $100,000 per person. If you have significant assets that you wish to safeguard, you should purchase higher coverage limits.
Property Damage Liability — This type of coverage protects against damage to other’s property caused by your vehicle during a collision. It covers all types of property, including vehicles, homes, mailboxes, fences, and even business storefronts.
Most insurance companies suggest a minimum of $100,000 in liability coverage but, again, this depends on your asset protection needs.
Collision Coverage
This type of insurance covers the cost of repairs or replacement of your vehicle if it’s damaged in a collision with another vehicle or object, regardless of fault. It is part of what’s often called “full coverage” insurance and will be required by your lender.
Comprehensive Coverage
Comprehensive insurance provides coverage for damages to your vehicle that are not the result of a collision. It typically covers theft, vandalism, fire, natural disasters, falling objects, and other similar incidents. Like collision and liability coverage, it too is a part of most lenders’ requirements for “full coverage.”
Personal Injury Protection (PIP) or Medical Payments Coverage
If you or a passenger in your car is hurt in a collision, Medical Payments (Med Pay) will pay for the medical bills. Personal Injury Protection (PIP) includes medical payments coverage and also pays for other losses like lost wages, regardless of fault. PIP coverage is mandatory in some states.
Uninsured/Underinsured Motorist Coverage
This type of insurance coverage protects you if you’re involved in an accident with a driver who doesn’t have insurance or has insufficient coverage to pay for your damages.
Gap Insurance
If you have a lease or loan on your vehicle, gap insurance covers the difference between what you owe on the vehicle and its actual cash value if it’s declared a total loss due to an accident or theft. Without gap insurance, you could be liable for the difference, and it can total thousands of dollars. Often, lenders will require gap coverage.
Rental Reimbursement Coverage
Rental reimbursement coverage will cover the cost of renting a vehicle while your car is being repaired due to an accident. This can be invaluable if you are heavily reliant on your vehicle for work or health reasons.
Towing and Labor Coverage
This type of coverage will cover the cost of towing your vehicle to a repair shop and sometimes includes additional roadside assistance services.
What Impacts Financed Car Insurance Rates?
Financed car insurance rates are determined by a variety of factors that assess the risk associated with insuring a particular driver and vehicle.
While insurance companies may use slightly different criteria and weighting systems, here are some common factors that can impact the money you pay for car insurance:
Driver’s Age and Experience — You’ve heard that males under the age of 25 will pay more for insurance and it is usually true. Younger and less experienced drivers are generally considered higher risk which may correlate to higher insurance premiums. Conversely, older, more experienced drivers often receive lower rates.Driving Record — Drivers with a clean driving record typically will pay lower premiums. A history of accidents, traffic violations, and claims can increase insurance rates. In fact, serious violations, like DUIs or multiple careless driving tickets, can make someone uninsurable.Vehicle Make and Model — The type of car you drive can affect insurance rates. Vehicles with high-performance capabilities or a higher likelihood of theft may have higher premiums.Usage/Mileage — The frequency and purpose of vehicle use can impact insurance rates. Drivers with long commutes or who use their vehicles for business purposes may face higher premiums. Be sure if you have a change in driving habits, such as a remote workplace that changes your commuter miles, you check with your insurance agent about possible savings on premiums.Location — Insurance rates can vary depending on where you live. Urban areas with higher traffic congestion and theft rates often have higher premiums compared to rural areas.
For example, financed car insurance requirements in Texas carry a higher price tag due to the growing population and traffic congestion. Same with the minimum insurance requirements for a financed car in Florida.
Credit History — Most insurance companies use credit history as a risk factor in determining insurance rates. Individuals with poor credit scores may be charged higher premiums.Coverage and Deductibles — The level of coverage and deductibles you choose can influence your insurance rates. Higher coverage limits and lower deductibles typically result in higher premiums. One effective way to lower your insurance costs is to raise your deductible amount. However, be prepared for the increased out-of-pocket amount if/when needed.Gender — Some companies consider gender as a factor in determining insurance rates. It seems to be a common perception that males have a higher frequency of accidents compared to females. However, this may be a myth and is becoming less influential as gender-based pricing is being phased out in many regions.Marital Status — Married individuals may be eligible for lower insurance rates compared to single individuals, as they are seen as more responsible and less likely to engage in risky driving behavior.
It’s important to note that these factors can vary depending on the insurance company and the specific region or country. Remember, insurance companies use complex algorithms and actuarial data to assess risk and determine premiums for each individual.
Shop Around for the Best Rates
When it comes to financed car insurance, it’s important to shop around for the best rates. Don’t just settle for the first policy you come across. Take the time to compare rates from multiple insurance providers to ensure you’re getting the best deal possible.
As an example, you can use online comparison tools, such as einsurance.com, to make this process easier. Keep in mind that the cheapest policy may not always be the best option, so be sure to consider the coverage and customer service offered by each provider as well.
Consider Discounts Offered by Insurance Companies
The insurance marketplace is a very competitive environment which is to your advantage. Insurance companies offer a multitude of discount opportunities to win your business. Consider some of these discounts when purchasing financed car insurance:
Insurance History — Continuous coverage with no lapses and a history of responsible insurance behavior can contribute to lower rates.Bundle All Your Insurance Coverage — If you have multiple insurance policies with the same company, such as home or renters insurance, life insurance, and auto insurance, bundling them together can save you money.Multi-Car Discount — You can often score a 10%+ discount when insuring multiple vehicles.Safe Vehicle Discount — Does your car have safety or anti-theft equipment, like anti-lock brakes, airbags, or running lights? Could be worth some savings.Good Driver and Defensive Driver Discounts — Your car insurance company may reward you for your good driving record or for taking a defensive driving course. Often, they will also offer a good student discount for students with a B average or betterPayment Discounts — Discounts are usually offered for things like paperless invoices, payment-in-full on renewal, and auto-pay arrangements.
Understand Your Payment Options and Requirements
When it comes to financed car insurance, it’s important to understand your payment options and requirements. Depending on your lender and insurance provider, you may be required to make monthly payments or pay for the entire policy upfront. It’s important to budget accordingly and make sure you can afford the payments.
Additionally, be aware of any late payment fees or penalties that may apply if you miss a payment. Some insurance providers may also offer discounts for paying your policy in full upfront, so be sure to ask about this option as well.
Be sure to check out the insurance marketplace tool at einsurance.com to shop for great financed car insurance ratesfor your newly financed vehicle.
Kathryn has a background as a small business owner and currency trader. Kathryn also enjoyed a career as a Regional Director and COO in healthcare, specializing in operations, third-party insurance reimbursement, and revenue cycle management.
