Do I need full coverage on a used car?

You should drop full coverage insurance on your car when the cost of the insurance equals or exceeds the potential payout, should a covered event occur. You may also want to drop full coverage if you are willing to pay for repairs out of pocket, or if you would prefer to replace your vehicle if it’s damaged. ... read full answer

For example, an older car with high mileage may not be worth costly repairs, and you might want to save for a new car instead of paying for extra insurance. Similarly, a driver who uses their car infrequently might take the gamble of dropping full coverage, since they are statistically less likely to damage their vehicle.

You should consider dropping full coverage car insurance when...

• Your car is old or has a lot of miles. The less valuable your car is, the less likely it is that you need much coverage beyond your state’s requirements. A good rule of thumb is that when your annual full-coverage payment equals 10% of your car’s value, it’s time to drop the coverage.
• You have a big emergency fund. If you don’t have any savings, car damage might leave you in a severe bind. In that case, the money you spend on full coverage insurance will protect you from insurmountable repair bills. Consider keeping your full coverage insurance until you have some savings built up.

For those who aren’t quite sure what it means exactly, “full coverage” is a catch-all term for insurance that covers you, other drivers, and your vehicles. It generally includes both collision and non-collision insurance. In other words, there is no single policy for "full coverage" car insurance. Instead, you select a combination of coverages that you feel is enough to handle all aspects of a car collision. With a well-rounded collection of coverages, you are “fully” protected from a variety of vehicular hazards, ranging from injuries and collision damage to weather events, encounters with wildlife, and vandalism.

However, it’s important to remember that different states require different levels of coverage. Make sure to check state requirements before making any changes to an insurance policy.

With that being said, it’s wise to get full coverage for a new, rare, or expensive car. A $40,000 truck is worth the few hundred dollars a year for full coverage insurance, for example. Otherwise, you run the risk of having to drop another $40,000 on a new truck if you’re involved in a serious accident.

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.... read full answer

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.

If you don’t keep full coverage on a financed car, you could be held responsible for paying for the vehicle in its entirety in the event of theft or an auto accident. You could also lose the car to the lender you signed a contract with if you don’t keep full coverage on your financed car.... read full answer

Nearly all lenders require that drivers carry full auto insurance coverage when they initially finance a vehicle. Lenders also usually stipulate in the contract that some form of full coverage is to be maintained for the life of the loan. Auto lenders impose the full coverage requirement because they want the vehicles they finance, which are technically still their assets, to be protected with the most insurance coverage possible so they can collect the vehicle’s value in case of an accident or theft of the car.

So, if you don’t keep full coverage on a financed vehicle, whether because you miss payments or you purposefully cancel the coverage, you’re likely in breach of your contract. Your insurance company or the DMV may contact the lienholder (lender) to alert them of the change, at which point your lender can legally cancel your contract, request full payment of the loan, or even repossess the vehicle.

Sometimes, if your lender finds you’re not keeping full coverage on a financed vehicle, it will contact you to give you a chance to have it reinstated. If you fail to do this, your lender could purchase an auto insurance policy for the vehicle and add it to the cost of your loan in what’s called “force-placed insurance.” These policies are typically expensive.

Ultimately, it’s best to keep full coverage on a financed car until you own it outright. Only then can you choose the level of car insurance coverage you want, as long as it meets your state’s minimum requirements.