Financing a car is a better alternative than risking everything, so if you were wondering- Do I need full coverage on a financed car. Then, the answer to this question is yes. If you save money to buy a car or use up all your savings in one go, you may not have immediate cash in times of emergency. However, if you finance a car, you won’t only have the luxury to drive, but you will also be paying a few bucks every month till you complete all your installments.
Well, financing a car doesn’t mean that you get an exemption from insuring it. Driving a car without car insurance is illegal in most states of the US. Moreover, if you are questioning yourself, ‘do I need full coverage on a financed car?’ An answer to this is yes. An investor or a bank would need you to have full coverage rather than just liability insurance to protect their investment.
In this article, we will answer your query regarding, do I need full coverage on a financed car. Moreover, we will also go through all the facts and reasons for insuring a financed car. To know more about it, keep reading.
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Why insure your financed car is vital?
When you take a loan to buy a car, the car belongs to the lender until you complete all your loan installments. From the time of your purchase until your full payment of the loan, your lender would need some security to protect his/her investment.
Moreover, insuring your financed car is beneficial for you as well. If your car is totaled in an accident before you have completed your loan payments, you will have to repay the full cost of damage to your lender while paying your loan amount. However, getting full coverage for your financed car will put you at an advantage. Instead of paying all the cost from your pocket, your insurance company would cover the damage.
What does full coverage insurance for a financed car cover?
Full coverage insurance for a financed car covers three major areas: liability insurance, collision, and comprehensive insurance.
If you don’t have any idea about these three types of coverage, worry not because we have got you covered.
If you get into an accident and fault is yours too, then liability insurance would pay for the property damage and medical costs of the opposing party.
Collision and comprehensive insurance both go hand in hand, but there is one major difference between both. Collision insurance will only pay for the cost of your car if it has collided with another vehicle. On the other hand, comprehensive coverage gives you protection from the damages that have occurred due to natural disasters, for example, flooding, fire, etc. or in case of theft or vandalism.
Apart from full coverage, if you are looking for extra protection, then Gap insurance is a smart choice to add to your full coverage plan.
What is Gap insurance plan, and how will it help?
When you buy a car or get it financed, your car’s value will start depreciating from the moment you take your vehicle out of the showroom. According to research, most cars lose around 20% of their value within a year.
Therefore, if you get into an accident or your car is totaled, Gap insurance will pay you the depreciated value of your car. It means it will pay you the amount, whatever your car is worthy of at the time you make your claim.
Similarly, when you take a loan to buy a car, the loan amount calculated with interest rates goes way higher than what you took from the lender initially. In the event, if your car gets totaled but you still need to pay your loan amount, then gap insurance would cover the bridge between the worth of your vehicle and the amount you owe.
What will happen if you fail to get full coverage for your financed car?
Getting full coverage for your financed car is your fundamental responsibility. However, if you fail to do so, you may put your loan contract in jeopardy. If you don’t get your car fully covered, it means you have breached the contract. In this scenario, the lender has the legal right to take away your car or add single interest coverage on your vehicle.
Single interest coverage would only cover the lender, and it will be very heavy on your pocket.
Overall, instead of getting into jeopardy, get full coverage for your financed car because it is beneficial for both parties. Once you pay the full amount of your loan and get your car in your name, then you can decrease the level of coverage to alter your premium rates.
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