Do I Need Full Auto Insurance Coverage on a Financed Car?

Stephen Freeman

2 years ago

Do I Need Full Auto Insurance Coverage on a Financed Car?

13.10.2022: Car insurance is a very vast and complicated topic to cover. But as a responsible adult and a driver, you need to know all the details about it to make sure not only that you get great car insurance coverage, but also save money at the same time.

Car insurance is a very vast and complicated topic to cover. But as a responsible adult and a driver, you need to know all the details about it to make sure not only that you get great car insurance coverage, but also save money at the same time.

Buying a car insurance policy is an expensive affair. First, there’s the mandatory liability auto insurance which you need to buy in almost every state in the US. There’s the personal injury protection plan that’s mandatory in twelve states. And there are more than 20 states that have made it mandatory for drivers to have uninsured motorist insurance.

Getting all these policies can generate a very long bill and break your dream of owning and operating an affordable car. But that’s not all. There’s the expensive collision damage waiver and comprehensive coverage that are optional but important auto insurance policies.

So you must be thinking about whether you need to buy full auto insurance coverage for a financed car. The answer to this question might disappoint you if you are looking to save some money. Let’s dive into the details and find the answers.

Auto Insurance Policies for Financed Cars

It is not an unknown fact that people finance cars because they want the damage to their wallets to be minimal. Sustained, but minimal. Financing a car lets you own and use one and make the payments over a term of two, three, five, or even 10 years.

But if you are planning on financing a car and skipping some optional auto insurance policies such as collision coverage or comprehensive coverage, you are in for an unpleasant surprise. Not only do you need to buy the mandatory policies required by the state, but also the optional policies that ensure you can pay for your car’s repairs.

If you buy a car by paying in full, you are free to do whatever you want with the car. Of course, you need to follow the state’s car insurance requirements, but when it comes to optional coverages, you make the decision. Sadly, that’s not the case with financed cars.

Cars that are financed are not completely yours since you still owe a debt to the leaser. The financial institution leasing the car to you requires you to get all the important auto insurance policies needed to ensure the safety of the car. Since the leaser also owns the car, they make sure that you get full auto insurance coverage. So what does full auto insurance coverage include? let’s take a look;

Full Auto Insurance Coverage

Full auto insurance coverage means that you have both mandatory and optional car insurance policies. Depending on the state you live in, you might need to get more than one mandatory car insurance policy. Let’s take a look at all these policies and what they cover.

Liability Coverage

Liability coverage is one of the most important auto insurance policies and it is mandatory to have in 49 states. So in almost every state in the US, you will have to buy liability insurance to legally drive a car.

Liability coverage cannot be claimed by the policyholder, but the other person involved in a car accident that’s the policyholder’s fault.t. It covers the cost of medical treatments and car repairs for the other person involved in the accident. This car insurance policy is not the concern of the leaser, but a requirement of the state.

Personal Injury Protection Plan

A personal injury protection plan can either be a mandatory auto insurance policy or an optional one depending on the state you live in. 12 states, called the “no-fault” states, have made it mandatory for the drivers to have this policy to legally drive a car.

A personal injury protection plan pays for the medical treatments required after a car accident no matter whose fault the accident was. It also covers lost wages due to the accident. If it is mandatory in your state, you’ll need to get it. If not, this policy can be skipped.

Uninsured Motorist Coverage

Just like personal injury protection plans, uninsured motorist coverage is mandatory in some states while optional in others. This policy is claimable when the driver at-fault either does not have liability insurance or has liability coverage but it is not enough to cover the total cost of the accident.

If uninsured motorist coverage is not mandatory in your state, you can skip this policy if you do not need it. For people looking to save some money on auto insurance policies in Indiana, look for cheap auto insurance in Indiana to find the best price and coverage.

Collision Damage Waiver

Coming to the most important policy when it comes to financed cars, collision damage is required when leasing or financing a car. The leaser or the bank requires you to buy a collision damage waiver to ensure that if you get in a car accident, the collision insurance can pay for the repairs.

As long as you need to pay the debt and the car is not completely yours, you’ll have to keep paying for the collision insurance. Collision insurance is necessary when leasing a car.

Comprehensive Coverage

Another important optional auto insurance coverage is comprehensive and you are required to have this policy as well when financing a car. Comprehensive insurance covers the cost of repairs needed if your car is damaged due to natural calamities such as earthquakes, floods, hailstorms, projectile damage, theft, riots, etc.

Guaranteed Asset Protection Plan

Another car insurance policy that you might need to get is a guaranteed asset protection plan, shortened to GAP insurance. GAP insurance pays for any remaining amount required if your car is totaled and the insurance payout is not enough to cover the total loan cost.

These are all the different policies you need to have with a financed car. Some are mandatory to have while some are required by the bank or the leaser. While leasing the car is considered to be the cheaper option, all the different auto insurance policies can add to the cost, making it quite expensive.