- Do you need full coverage on a financed car?
- Financed car insurance rates by carrier
- When financing a car, what insurance do I need?
- Can I get liability-only insurance on a financed car?
- What does financing a car mean?
- How much is insurance on a financed car in your state?
- How does financing a car affect your car insurance?
- How to save on insurance for a financed car
- Methodology
- FAQ: Insuring a financed car
Do you need full coverage on a financed car?
Yes, you need full coverage on a financed car because it's part of your loan agreement. Your lender will require you to carry comprehensive coverageComprehensive coverage helps pay for damage to your car caused by events other than a collision, such as theft, fire, vandalism, or natural disasters. It is subject to a deductible. as well as collision coverageCollision coverage helps pay for repairs or replacement of your car if it's damaged in an accident, regardless of who is at fault and is subject to a deductible. to protect its investment in your vehicle.
If something happens to your vehicle while the lender still has a stake in it, you're expected to repair it to maintain its value. To ensure you can afford to do that, the loan agreement requires full coverage insurance, or, more specifically, collision and comprehensive insurance. Until you pay off your loan balance, you'll be required to continue carrying full coverage.
Financed car insurance rates by carrier
A financed car will require full coverage insurance, and rates vary by carrierAn insurance carrier is the company that provides your car insurance policy and pays claims. as well as based on the liability coverage level you choose. Travelers has the lowest rates on a full coverage policy with state minimum liability and with limits of 50/100/50, but Nationwide edges it out as the cheapest for full coverage with 100/300/100 liability limits.
When financing a car, what insurance do I need?
For a loan, you'll need to carry more than the state minimum. You will need full coverage auto insurance, which includes liability insurance, anything else required by law (in some states that includes personal injury protection and uninsured motorist coverage), and:
- Collision coverage. This auto insurance coverage protects you when your vehicle is damaged after a collision, regardless of fault in the accident.
- Comprehensive coverage. This coverage protects your vehicle when damages occur from something other than a collision with a car or an object. Examples of damages covered by comprehensive insurance are weather damage and vandalism.
Can I get liability-only insurance on a financed car?
No, you can't carry a liability-only insurance policy if your car is financed. Your lender will require you to carry comprehensive and collision coverage.
A liability-only policy meets state legal minimum coverage requirements, but provides no protection for the vehicle itself. When you finance a car, you sign an agreement with the lender that requires you to protect the car, because it's collateral for the loan. A liability-only insurance policy doesn't meet that requirement.
What does financing a car mean?
Financing a car means that you are borrowing money to buy the car. When financing a car, you typically can choose between:
- Direct financing: This is where you borrow from a bank, finance company or credit union
- Dealership financing: This is where you borrow through the car dealership that sells you a vehicle.
Financing a car involves agreeing to pay back your car loan over a specified period.
People ask
Is insurance more expensive for a financed car?
No, insurance isn't more expensive if your car is financed. However, since you full coverage costs more due to the addition of collision and comprehensive insurance, you may find your insurance premiums go up if you previously carried liability-only.
How much is insurance on a financed car in your state?
Full coverage car insurance rates for financed cars vary by state as well as by company. Find the best rates for a full coverage policy in your state below.
| State | Average annual premium | Cheapest company | Cheapest company premium |
|---|---|---|---|
| Alabama | $1,860 | Nationwide | $1,345 |
| Alaska | $1,676 | GEICO | $1,338 |
| Arizona | $1,812 | GEICO | $1,312 |
| Arkansas | $1,957 | Travelers | $1,442 |
| California | $2,416 | GEICO | $1,919 |
| Colorado | $2,337 | GEICO | $1,445 |
| Connecticut | $1,725 | GEICO | $1,242 |
| Delaware | $2,063 | Nationwide | $1,498 |
| Florida | $2,694 | State Farm | $2,119 |
| Georgia | $1,970 | Auto-Owners | $1,529 |
| Hawaii | $1,517 | GEICO | $1,184 |
| Idaho | $1,428 | Auto-Owners | $916 |
| Illinois | $1,532 | Auto Club Group - ACG (AAA) | $979 |
| Indiana | $1,515 | GEICO | $986 |
| Iowa | $1,630 | Travelers | $1,238 |
| Kansas | $1,900 | Nationwide | $1,316 |
| Kentucky | $2,228 | Travelers | $1,804 |
| Louisiana | $2,883 | Southern Farm Bureau | $2,121 |
| Maine | $1,175 | Auto-Owners | $707 |
| Maryland | $1,746 | GEICO | $1,262 |
| Massachusetts | $1,726 | State Farm | $689 |
| Michigan | $2,352 | GEICO | $1,553 |
| Minnesota | $1,911 | Nationwide | $1,363 |
| Mississippi | $2,008 | Nationwide | $1,331 |
| Missouri | $1,982 | Nationwide | $1,361 |
| Montana | $2,193 | Nationwide | $1,394 |
| Nebraska | $1,902 | Auto-Owners | $1,193 |
| Nevada | $2,060 | State Farm | $1,443 |
| New Hampshire | $1,265 | Auto-Owners | $803 |
| New Jersey | $1,902 | NJM | $1,318 |
| New Mexico | $2,049 | GEICO | $1,406 |
| New York | $1,870 | Progressive | $1,020 |
| North Carolina | $1,741 | Erie Insurance | $1,082 |
| North Dakota | $1,665 | American Family | $1,092 |
| Ohio | $1,417 | Grange Insurance | $986 |
| Oklahoma | $2,138 | Progressive | $1,194 |
| Oregon | $1,678 | Oregon Mutual Insurance | $1,147 |
| Pennsylvania | $1,872 | Travelers | $952 |
| Rhode Island | $2,061 | State Farm | $1,319 |
| South Carolina | $2,009 | Auto-Owners | $1,475 |
| South Dakota | $2,280 | Nationwide | $1,526 |
| Tennessee | $1,677 | Farm Bureau Insurance of Tennessee | $1,355 |
| Texas | $2,043 | Texas Farm Bureau | $1,301 |
| Utah | $1,825 | Nationwide | $1,135 |
| Vermont | $1,319 | Progressive | $926 |
| Virginia | $1,469 | Virginia Farm Bureau | $1,167 |
| Washington | $1,608 | GEICO | $1,171 |
| Washington, D.C. | $2,157 | GEICO | $1,408 |
| West Virginia | $2,005 | Nationwide | $1,215 |
| Wisconsin | $1,664 | Travelers | $1,089 |
| Wyoming | $1,758 | American National | $827 |
How does financing a car affect your car insurance?
Financed car insurance requirements are different from a car you own outright.
When you finance a car the lender has a financial stake in that vehicle. This means that damage to your car is a risk not only for you but also for your finance company. If you can't pay out of pocket to repair the car or pay off the loan if it's totaled, the lender will lose money.
As a result, your loan agreement will require you to carry full coverage insurance. That way, if your car is damaged, the insurer will pay to repair the damages or pay the lender if the car is a total loss.
Your lender will be named as a loss payee on your insurance policy, protecting their investment. This means the insurance company will pay the lender first if your car is a total loss to pay the loan.
What happens if you don’t have full coverage on a financed car?
If you drop insurance on a financed car, your lender will be notified by the insurance company. Dropping full coverage on a financed car is a big mistake. Doing so is a violation of your finance contract, possibly placing your car loan in jeopardy.
In some cases, the lender will purchase what is known as force-placed insurance to make sure the car is covered. The fee for this coverage, which is very expensive and protects only the lender will be added to your loan payments.
Furthermore, if your car is damaged in an at-fault accident, you will have to pay for all repairs yourself; the insurance company will not cover anything. And, if the car is a total loss, you will not only have no coverage for the car itself, but will still have to pay off your loan. So, while coverage costs are higher, the cost of not having it would be much worse.
What is gap insurance and do I need it?
After you buy a new car, the value of the vehicle immediately begins to drop. This depreciation can cause a problem if the value of your loan exceeds the vehicle's market value. Insurance will only pay the actual cash value of the car, regardless of your loan balance.
If you badly damage or total your car, gap insurance will cover the difference between the actual cash value of the vehicle and the amount you owe on the car loan.
Gap insurance is not usually a requirement, but it might be in some cases.
How to save on insurance for a financed car
You can get cheaper full coverage insurance for your financed car with a few tips:
- First, make sure you shop around and compare rates. It's a good idea to spend some time doing this before you buy a car, and consider the insurance costs of different makes and models before deciding on a vehicle.
- Ask about car insurance discounts.
- Consider usage-based insurance. Programs that track your driving habits and reward you for safe driving can bring down your rates.
- Raise your deductibles. A higher deductible means a lower rate; just be sure to choose one you can afford.
Methodology
National and state average rates are based on three coverage levels: state minimum, 50/100/50 liability-only, and full coverage with 100/300/100 liability and $500 deductibles. Rates were fielded by Quadrant Information Services in 34,588 ZIP codes across all 50 states and D.C.
Unless otherwise indicated, averages are based on our full coverage data set. This data set is based on:
- Bodily injury liability of $100,000 per person and $300,000 per incident
- Property damage liability of $100,000 per incident
- Comprehensive and collision deductibles of $500
- 40-year-old driver
- Honda Accord LX
- Good credit
- A clean driving record
- 12-mile commute, 10,000 annual mileage
FAQ: Insuring a financed car
What is the minimum coverage for a financed car?
The minimum coverage for a financed car is generally your state's minimum insurance coverage requirements, plus collision and comprehensive coverage.
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