Finance with insurance cars depends on the terms of your loan agreement. Your bank or auto loan company will most likely require you to keep certain types of coverage on the vehicle until you completely repay your loan and take full ownership. Most lenders require you to maintain full coverage on the vehicle to protect their financial interests in the car.
Components of Full Coverage Insurance
The definition of the term full coverage varies among insurance companies. However, most so-called full coverage policies include the following types of insurance:
- Liability, which covers bodily injury and property damage experienced by others if you cause an accident.
- Collision, which pays for the damage to your vehicle after an accident regardless of who caused the crash.
- Comprehensive, which pays for non-collision damage to your vehicle including incidents such as theft, extreme weather, falling objects, flooding, hail, fire, or vandalism.
Auto insurance website The Zebra recommends adding gap insurance to your full coverage policy if you financed your car. This type of coverage pays the difference between your auto loan payoff and insurance settlement if you total the vehicle and owe more than its value. You might experience this situation if you have a serious accident within just a year or two of purchasing the vehicle.
Cost of Full Coverage Auto Insurance
The cost of insuring a vehicle does not change whether you finance the car or purchase it in cash. However, you might pay more since you have to get full coverage rather than the minimum liability coverage in your state.
According to CarInsurance.com, the average driver pays about $1758 for an annual full coverage policy with these coverage limits:
- Collision and comprehensive coverage with a $500 deductible.
- $100,000 in property damage liability per accident.
- $100,000 in bodily injury liability per person.
- $300,000 in bodily injury liability per accident.
The Zebra lists the average full coverage cost from major insurance carriers as follows:
- USAA (available only for members of the military and their families): $476 per year with a $1000 deductible, $545 with a $500 deductible.
- GEICO: $533 per year with a $1000 deductible, $602 with a $500 deductible.
- State Farm: $589 per year with a $1000 deductible, $647 with a $500 deductible.
- Nationwide: $640 per year with a $1000 deductible, $714 per year with a $500 deductible.
- Progressive: $716 per year with a $1000 deductible, $809 per year with a $500 deductible.
- Farmers Insurance: $716 per year with a $1000 deductible, $822 with a $500 deductible.
- Liberty Mutual: $767 per year with a $1000 deductible, $863 with a $500 deductible.
- Allstate: $878 per year with a $1000 deductible, $1011 with a $500 deductible.
You can save an average of $85 annually on your insurance premium by paying the entire cost upfront rather than in monthly installments. Setting up an electronic funds transfer with your auto insurance company can also qualify you for a discount.
Most companies offer a discount on insurance by bundling your home or renter’s insurance policy. Family members can also share a policy for multiple vehicles to save.
Maintaining a good driving record helps keep your auto insurance rates low. If you have an accident or ticket, your rates will go up for about three years.
Some insurance companies offer telematics coverage. This usage-based insurance provides possible discounts based on safe driving behaviors and limited mileage, with tracking through a small device or smartphone app.
Coverage for your new car will vary in price based on the specific make and model you finance.
The Facts About Financing
When you finance an automobile, the bank or loan company buys the vehicle and you make payments over time with interest. With each payment, you increase your equity, or ownership, in the car and reduce the amount you owe to the bank. When you pay off the loan, you can keep the car or sell it for a down payment on a newer vehicle.
If you finance your car through the dealership, you gain the benefit of convenience but may pay more in fees and interest. You can typically get a lower interest rate by going through an outside bank, unless the dealer has a special promotion such as zero percent interest for a specified term. You can also try to negotiate the dealer interest rates, especially if you have good credit.
You can also go through your bank or credit union to get an auto loan. If you have an existing relationship with the financial institution, you might get a better rate. You can get preauthorization from your bank for an auto loan before you shop for your new vehicle. Calculate the total cost of your auto loan over time, including interest, when making your decision.
Insuring a Financed Car
The financing company may require that you list them as a payee on your auto insurance policy. Finance website The Balance notes that you may have to provide proof of doing so before you can receive a car loan. When you get an insurance quote for the car, tell the agent that you will have a lienholder on your policy.
If you make changes to your auto insurance policy, the company will notify all payees on your account, including your car lender. If you cancel your policy, change your coverage, or fail to pay your premium, you cannot hide this information from the bank or loan company.
According to AutoInsurance.org, you can lose your auto loan if you do not maintain auto insurance coverage as required in your contract. The lender could also require you to buy force-placed insurance, which protects only the vehicle and pays out only to the loan company or bank if you have an accident. The cost of this expensive policy is added directly to your loan.
Experts recommend shopping around for a new auto insurance policy about every six months to get the best possible rates.
Check this out if you need additional information, resources, or guidance on car insurance.
Sources:
How to Find Cheap Car Insurance for Your Financed Vehicle
Does Financing a Car Affect Your Car Insurance?
Do I need full coverage insurance to finance a car?
Do I need full coverage on a financed car?
What Is the Difference Between Make and Model?
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