Getting Insurance For Financed Vehicles

After houses, cars are some of the most expensive investments that people have. Unfortunately, accidents can happen. This can result in a person’s investment going from tens of thousands of dollars to no value in a very short period. This is one of the many reasons that people purchase car insurance plans. Automobile insurance is required by law in almost every state. Each state has different rules and requirements for automobile insurance, but sometimes people have to purchase more car insurance than the minimum requirements in their state. One of the times where people may be required to purchase additional car insurance is if they decide to finance a vehicle.

What Are Financed Vehicles?

Financing a vehicle is something that most people do when they purchase new cars. Whether you are purchasing your first car or any car after, financing is one way that people can get one of the latest vehicles with the most recent safety features. Many people do not have enough money to purchase a brand-new car in their savings accounts. These people often decide to have their vehicles financed. A financed vehicle is one that is paid for by another company for you. You fill out a contract with the financing company to make payments on the car until it is paid back. Until enough of your policy is paid back, however, the financing company still owns the vehicle you are driving.

This makes financing companies invested in your vehicle as well. Due to this, they will often require more insurance than just the minimum amount. If you are in an accident that you are found to be at fault for, and owe tens of thousands of dollars to the financing company, you might not be able to pay them back. They protect themselves by requiring you to have additional types of coverage.

What Is The Coverage That Is Required For Financed Vehicles?

Many of the insurance types required by law are designed to pay out money for damages to other people and their property if you are found to be at fault in a car crash. Some states do have no-fault insurance laws as well. The minimum limits for automobile insurance do not cover all of the possible financial dangers.

Auto financing companies want to protect themselves from a more significant amount of financial dangers. In addition to the minimum requirements for auto insurance in the state you will be living in, people are often required to purchase collision insurance and comprehensive insurance. Collision insurance coverage goes beyond the minimum liability coverage most states require. It provides insurance to the vehicle if it is involved in a car accident or other collision. If your car collides with another vehicle or property, you are covered regardless of who is at fault. This is an important coverage to have for financed vehicles because it not only protects you, but it also protects the company financing the car.

Another type of coverage that is often required by auto insurance loan companies is comprehensive coverage. This provides financial protection if there is damage to your vehicle that is not caused by a collision but is caused by other perils listed in the policy. This includes things like fire damage, animal collisions, damage from natural causes, theft, vandalism, and more. Not only will this type of car insurance protect you, especially if you are financing a vehicle, it also protects the company providing you with a loan.

Gap Insurance

While not always required by the lender, insurance is essential to have if you are financing a vehicle. As soon as a new car is driven off the lot, its value decreases. Your auto insurance policy will cover you for the actual cash value of your vehicle, which can be much lower than the original cost of the car. The original price of the car is the amount that paid for it.

If a person is involved in a car accident before enough of the loan has been paid off, to where the actual cash value of the car is the same or higher than the amount owed on the the loan, they will end up owing the financing company more money than the insurance company will pay out. To protect yourself from this, you will want to consider getting gap insurance. Gap insurance covers the difference in cost between what the car insurance company will pay you and what you owe to the creditor. This protection can help people save thousands of dollars if an accident occurs. In some cases, gap insurance is required in the terms of a person’s contract.