When financing a car, what insurance do I need?

Question

Yes, you need gap insurance if you have full coverage and still owe money on a car loan or lease. Gap insurance is needed even if you have full coverage because full coverage does not cover the difference between what you owe on a loan/lease and the car’s actual cash value, like gap insurance does.… read full answer

When You Need Gap Insurance If You Have Full Coverage

You’re financing/leasing a new vehicle for a long term (60+months).

You made a small down payment on a new vehicle (less than 20%).

You rolled over negative equity from a previous auto loan.

You financed a vehicle that has a high depreciation rate.

Your contract has a high interest rate.

Your lender or lessor requires gap insurance.

The Difference Between Gap Insurance and Full Coverage

Gap insurance – short for guaranteed asset protection insurance, and sometimes called loan/lease payoff coverage – protects you financially from having to cover the cost of depreciation, or the difference between what you still owe on your contract and what your insurance company says the vehicle is actually worth today. Collision and comprehensive protection – the main components of full coverage, along with liability insurance – won’t cover that. As a result, you need gap insurance even if you have full coverage, especially if your situation leads to a relatively large gap to cover.

It’s important to remember that while gap insurance isn’t required by any insurer or state, having gap insurance on top of full collision and comprehensive coverage will probably be required by your lender if you’re financing/leasing a new vehicle, and even some used vehicles. In addition, gap insurance is meant specifically for drivers who still owe a balance on their vehicle, so if you own your car outright and have full coverage, you don’t have a need for gap insurance.

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Answer 1 · 2022-06-24 16:07:05

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Delaney Simchuk, Car Insurance Writer

@delaney_simchuk • 06/24/22 This answer was first published on 06/24/22. 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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When financing a car, you will likely need at least liability, collision, comprehensive, and gap insurance. Most lenders will require full coverage insurance to make sure that you meet your state’s minimum coverage requirements and that you will be able to pay the lender back in the event of vehicle damage.

What Insurance You Need for a Financed Car

Your state’s minimum coverage requirements. Almost every state requires some type of liability car insurance in order to legally drive. Liability insurance pays for other people’s medical expenses and property damage that you cause in a car accident. On top of liability insurance, some states require extra types of coverage such as uninsured motorist, personal injury protection, or MedPay.

Comprehensive and collision insurance. Having comprehensive and collision insurance on top of your state’s minimum requirements gives you a so-called full coverage policy, ensuring any damage to the financed vehicle will be covered. Collision insurance covers damage to your vehicle as a result of an accident or collision with another object while driving, and comprehensive insurance covers non-accident-related damage such as your car being damaged by a falling tree or getting graffitied.

Gap insurance. Gap insurance applies when your financed car is totaled or stolen, and your lender or lessor may require it. It covers the “gap” between your car’s ACV and your remaining loan or lease balance. Gap insurance guarantees your lender or lessor that they will be repaid even if your car is stolen or totaled.

If your insurance policy lapses on your financed vehicle, your lender or lessor may buy force-placed insurance, also known as creditor-placed or lender-placed insurance. This insurance will likely be more expensive than coverage directly from your insurer and may not even cover your state’s minimum insurance requirements.

To learn more, check out WalletHub’s guide to how much car insurance you need.

… read full answer Aspects	Comprehensive Insurance	Full Coverage Insurance
Average Annual Cost	$162	$1,997
Required by State Law?	Never	Never
Includes Collision Insurance?	No	Yes
Includes Liability Insurance?	No	Yes
Includes PIP?	No	Sometimes
Includes Uninsured Motorist Coverage?	No	Sometimes

When financing a car, what insurance do I need?

Delaney Simchuk, Car Insurance Writer

What Insurance You Need for a Financed Car

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