Importance of Full Coverage Auto Insurance when you have a Car Loan
Auto insurance coverage is required on a vehicle in all states, but the minimum coverage required varies from state to state. Please be sure to check your state's minimum auto insurance coverage before purchasing insurance.
What is full coverage auto insurance?
Full coverage auto insurance protects you and your vehicle, along with other drivers and their vehicle. Full coverage auto insurance covers:
- Liability insurance: pays for property damage and injuries of others if you caused the accident
- Collision insurance: pays for the damage done to your vehicle regardless of who caused the accident
- Comprehensive insurance: pays for the damage done to your vehicle that is caused by incidents other than accidents, such as theft, flooding, fire, animal collisions, etc.
The amount that is paid by the insurance depends on the coverage limits that you choose. Some drivers choose to add the maximum coverage offered by a company, while others choose the minimum coverage offered. It is a personal preference.
What is auto liability insurance?
Auto liability insurance pays for other driver's expenses if you, the policyholder, are liable for an accident, but it does not cover the policy holder. Auto liability insurance covers:
- Bodily injury: pays for the other drive's medical expenses, such as x-rays, treatment, and follow-up appointments.
- Property damage: pays for the other driver's property damage, such as repairs.
Auto liability insurance helps you from having to pay out of pocket, but the amount that is paid by the insurance depends on the coverage limits that you choose.
There is a noticeable difference between liability and full coverage insurance. In short, full coverage covers both parties involved in accidents while liability only covers one party involved and it is not the policy holder.
Although auto liability insurance is the minimum requirement in most states, lenders are allowed to require higher coverage before financing your vehicle. It usually depends on the type of auto loan you are needing, so make sure you discuss this with your lender.
Majority of lenders will require you to have full coverage insurance on your vehicle in order to protect their investment. Without full coverage auto insurance, if your vehicle is wrecked and/or totaled, you, the borrower, becomes responsible for paying off your loan and paying for all repairs, if needed. Failure to do so is a breech in contract on your part and could possibly result in legal actions.
Some auto loans, like title pawns, require full coverage auto insurance if you are borrowing over a certain amount. For example: Some title pawns may require full coverage auto insurance for title pawns that are $1,000.00 or more.
Even if a lender does not require full coverage auto insurance, it is a good idea to look into it while you have an auto loan. It could save you hundreds or thousands of dollars if you were to be in accident by making sure you pay little to nothing out of pocket.
Please keep in mind that the cost of the auto insurance you choose will depend on the coverage limits you need and the company you choose. Shop around for the perfect insurance company and make sure that they fit your needs!