What is the minimum coverage needed for a financed car?
If you have an auto loan, the lender will likely require you to have comprehensive and collision coverage, in addition to liability and other legally required coverages, which your lender may refer to as "full coverage." Lenders may also require additional coverages, such as uninsured motorist coverage or gap insurance.
Car loan insurance requirements
These are the coverages a lender may require as part of your car loan/lease agreement:
- Liability: Liability coverage is required in nearly every state, regardless of whether you finance, lease, or buy your car outright. As a result, lenders may require it.
- Comprehensive & collision: Lenders typically require comprehensive coverage and collision coverage to make sure the vehicle can be repaired or replaced if it's damaged or totaled. However, they're not legally required by any state.
- Uninsured/underinsured motorist: Some lenders may also require uninsured motorist coverage with a specific limit. UM/UIM coverage is also legally required in some states.
- Gap insurance: Gap coverage may be required by some lenders, but it's not as commonly required. Note that Progressive doesn't offer gap insurance, but instead offers similar loan/lease payoff coverage, which can cover your outstanding loan/lease balance for up to 25% of your vehicle's actual cash value. No states require gap insurance or loan/lease payoff coverage.
Do you have to have comprehensive and collision on a financed car?
If you have an auto loan, lenders typically require you to maintain collision and comprehensive coverage to help protect their investment. If you're in an accident, collision coverage can pay for damage to your vehicle, no matter who is at fault. Comprehensive coverage can pay for damage caused by events other than accidents that are beyond your control, such as vandalism, theft, or weather-related damage.
Is insurance more expensive for a financed car?
No. Insurers consider many other factors when determining the cost of car insurance including your age, driving history, where you live, the car's make and model, and more. Whether you're financing your car or not won't affect your premium.
What happens if you don't have the required coverages on a financed car?
Auto loan/lease agreements usually require you to carry any required coverages until you repay your balance. The lender will likely require you to show proof of insurance when you apply for a loan. If you drop any required coverages before paying it off, the lender may purchase insurance on your behalf and add the cost of the policy to your monthly loan payments. This is known as force-placed insurance.