Yes, you have to have comprehensive and collision coverage on a financed car. Most reputable lenders require comprehensive and collision insurance on financed cars to protect their investment if the car is damaged, stolen or totaled.
Comprehensive insurance pays for repairs or replacement if a car is damaged due to something besides a crash, such as theft, vandalism, or natural disasters. Collision coverage, on the other hand, pays to repair or replace a car that is harmed in an accident. Unlike liability insurance, comprehensive and collision are not required by any state laws.
When purchased in addition to the state minimum coverage, comprehensive and collision are usually referred to as full coverage. Full coverage insurance is generally more expensive than just purchasing the state minimum coverage, but you can save by shopping around for quotes and checking out WalletHub’s guides to cheap car insurance and car insurance discounts.
Yes, you need full coverage on a financed car. Any reputable lender will require drivers with a loan or a lease to purchase comprehensive and collision insurance for their vehicle in addition to the state’s minimum requirements for car insurance. Your contract with the lender might even require you to choose a specific … read full answerdeductible to ensure that you will be able to pay it if you file a claim.
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.
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 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.
WalletHub Answers is a free service that helps consumers access financial information. Information on WalletHub Answers is provided “as is” and should not be considered financial, legal or investment advice. WalletHub is not a financial advisor, law firm, “lawyer referral service,” or a substitute for a financial advisor, attorney, or law firm. You may want to hire a professional before making any decision. WalletHub does not endorse any particular contributors and cannot guarantee the quality or reliability of any information posted. The helpfulness of a financial advisor's answer is not indicative of future advisor performance.
WalletHub members have a wealth of knowledge to share, and we encourage everyone to do so while respecting our content guidelines. Please keep in mind that editorial and user-generated content on this page is not reviewed or otherwise endorsed by any financial institution. In addition, it is not a financial institution’s responsibility to ensure all posts and questions are answered.
Ad Disclosure: Certain offers that appear on this site originate from paying advertisers, and this will be noted on an offer’s details page using the designation "Sponsored", where applicable. Advertising may impact how and where products appear on this site (including, for example, the order in which they appear). At WalletHub we try to present a wide array of offers, but our offers do not represent all financial services companies or products.