Do I need full coverage on a financed car? This question is about Car Insurance

Do I need full coverage on a financed car?

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This question is about Car Insurance

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@WalletHub • 01/19/22 This answer was first published on 12/22/20 and it was last updated on 01/19/22.For the most current information about a financial product, you should always check and confirm accuracy with the offering financial institution. Editorial and user-generated content is not provided, reviewed or endorsed by any company.

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Yes, you need full coverage on a financed car. Any reputable lender will require drivers with a financed vehicle to purchase comprehensive and collision insurance, in addition to the state’s minimum required car insurance coverage. Your contract with the lender might even require you to choose a specific deductible to ensure that you will be able to pay it if you file a claim.

Why You Need Full Coverage on a Financed Car

Full coverage is required on financed cars to protect the lender’s investment. This applies regardless of whether the vehicle is new or used.

When buying full coverage insurance for a car with a loan, you should notify your insurer that the car is financed, because your lender will need to be listed on the policy. As a result, your lender will be notified when your policy expires, is renewed, or is canceled. When your loan ends, you can notify your insurance company in order to have your lender removed from the policy.

Other Key Things to Know About Full Coverage on Financed Cars

If you purchase full coverage and then fail to maintain it, your lender may be able to purchase expensive force-placed insurance or even repossess your car. The good news is that having an auto loan is not considered a risk factor for insurers, so the loan itself will not increase your insurance premiums. Full coverage is more expensive than maintaining only your state’s mandatory minimum coverage, though.

You can find affordable full coverage by checking out WalletHub’s page on cheap car insurance and our guide to car insurance discounts.

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Do you have to have full coverage on a new car?

No, you don't have to have full coverage on a new car. From a legal perspective, you're only required to carry the minimum car insurance coverage that your state mandates. If you have a financed car, however, your lender might require you to carry additional coverage such as collision, comprehensive, or gap insurance.… read full answer

That being said, it's wise to carry full coverage on a new car as it will make it easier to repair or even replace the car in case of an accident or damage from hail, fires, floods, or even vandalism. Full coverage will also have you covered if you need to replace or repair your windshield.

Average Cost of Full Coverage:

Company	Full Coverage Cost
Geico	$1,674
USAA	$2,002
Progressive	$2,056
Allstate	$2,324
State Farm	$2,617

Although full coverage is more expensive than your minimum car insurance required by state, it's well worth the purchase if you own a new, rare, or expensive vehicle. You can discuss with your local insurance agent to personalize your full coverage limits and coverage to best suit your needs.

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Should you have full coverage on a 10-year-old-car?

You should have full coverage on a 10-year-old car if you can’t afford to repair or replace it out of pocket. On the other hand, you do not need full coverage on a 10-year-old car if you own it outright and will be able to pay for the damage without assistance in the event of a collision or other accident.… read full answer

In most cases, you can think about dropping full coverage once the cost exceeds 10% of your car’s value. So, even if your car is 10 years old, it could still be worth enough that it makes sense to keep the extra coverage. Also, keep in mind that you may not be able to drop full coverage if your car is still leased or financed, since most lenders and lessors require it.

Finally, you should consider your personal financial situation. If you need your car on a daily basis and can’t cover the cost of fixing it, then full coverage is worth it even if the vehicle isn’t worth a lot.

To learn more, check out WalletHub’s guide to full coverage insurance.

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