Do I Need Full Coverage on a Financed Car? (2024) (2024)

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What Is Full-Coverage Car Insurance?

Full-coverage car insurance usually refers to a policy that includes the state-minimum coverage and adds at least collision and comprehensive insurance. To drive in every state (except Virginia and New Hampshire), you need to hold at least your state’s minimum insurance requirements.

Most states require bodily injury liability (BI) and property damage liability coverage (PD), though some also require uninsured/underinsured motorist coverage (UM/UIM), personal injury protection (PIP) or medical payments coverage (MedPay).

Typically, full-coverage policies include six main types of coverage:

Do I Need Full Coverage on a Financed Car? (2024) (2)
Type of CoverageWhat It Covers
Liability insuranceCovers another party’s property damage or bodily injury resulting from an accident you’re at fault for
Collision insuranceCovers damage to your vehicle, regardless of who’s at fault for an accident
Comprehensive insuranceCovers damage to your vehicle due to theft, vandalism, natural disaster or other non-collision events
Personal injury protection (PIP)Covers medical expenses, lost wages and funeral costs for you and your passengers after an accident, regardless of who’s at fault
Medical payments coverage (MedPay)Covers medical bills and funeral costs for you and your passengers after an accident, regardless of who’s at fault
Uninsured/underinsured motorist coverage (UM/UIM)Covers damage to your property or bodily injuries you and your passengers sustain from an accident with a driver who doesn’t have car insurance or doesn’t have enough coverage

Some full-coverage insurance policies also include gap insurance, which can help pay your car loan off in the event of a total loss. This coverage is generally optional, and not all insurance companies offer it. Some lenders require drivers to hold gap insurance for the duration of their auto loans.

When we polled 1,000 consumers about their auto insurance in 2022, 67% reported having full coverage.

Source: Progressive

How Much Does Full-Coverage Insurance Cost?

According to Quadrant Information Services, the average annual cost of a full-coverage insurance policy is $1,730. The table below shows average premiums for a 35-year-old married driver with good credit and a clean driving history.

Car Insurance CompanyAverage Monthly CostAverage Annual Cost
Erie Insurance$103$1,238
Auto-Owners Insurance$111$1,337
State Farm$123$1,481
American Family Insurance$128$1,537

Do I Need Full Coverage on a Financed Car?

Most lenders will require you to carry a full-coverage auto insurance policy because your vehicle is the collateral for your loan. Liability insurance only covers property damage and medical expenses for other parties when you’re at fault for an accident. If your car is stolen or totaled and you don’t have full coverage, you’ll still need to pay off the loan for a vehicle you no longer have.

Once you’ve paid your vehicle off, you can decide whether to drop certain coverages and get a liability-only policy. Depending on your circ*mstances and where you live, you may decide full coverage is best for you.

Full coverage is more expensive than your state’s minimum liability limits, but the benefits of having full coverage are clear. If you’re involved in an accident or your car is stolen, a liability-only policy won’t cover your repair bills or help you get a new car. If you have a new car, you may want to consider getting new car replacement insurance.

What Happens if I Don’t Have Full Coverage on My Financed Car?

If you buy a minimum-coverage policy for a financed vehicle, you may be in violation of your loan contract. This means your lender is legally allowed to cancel your auto loan and repossess the vehicle.

If you don’t purchase the lender-required insurance when you buy your car, your loan contract may give the lender the right to insure the vehicle. This is called force-placed insurance. The insurance protects the lender, but you’re required to pay for it. These policies are generally much more expensive than insurance you purchase on your own.

What To Do When You’ve Paid off a Financed Car

Once you’ve paid your vehicle off, you’re no longer subject to any insurance requirements other than your state’s minimums. If you want to drop some types of coverage to save money, that’s up to you. Either way, have your insurer remove the lender as a lienholder on your policy. This makes both the insurance shopping and claims processes easier.

If you decide to shop around for better or cheaper coverage, there are a few steps you should take. They include:

  • Compare car insurance quotes from several providers: You’ll have a better idea of what you’re likely to pay, and you can select a company that offers a policy within your budget.
  • Look for car insurance discounts: Many companies offer opportunities to save by bundling your auto and homeowners insurance, maintaining good driving habits or adding another vehicle to your policy.
  • Adjust your coverage levels: Depending on factors such as your location and your car’s value, you may decide to drop collision or comprehensive coverage to lower your insurance premium.
  • Adjust your deductible: Many policies allow you to select the deductible you want to pay when filing an insurance claim. A higher deductible usually gets you a lower premium and vice versa.

Do I Need Full Coverage on a Financed Car?: Conclusion

If you use an auto loan to buy a new or used vehicle, it’s highly likely that the lender will require you to purchase a full-coverage policy. This covers you and your car in many instances that could result in property damage or bodily injury. It also protects the lender’s investment. In some cases, you’ll also need to have gap insurance.

If you decide not to hold full coverage on a leased car, you might be violating your loan contract. The lender can then get force-placed insurance or repossess your car.

Top Auto Insurance Recommendations

If you’re looking for a full-coverage policy when purchasing a financed car or looking to change your coverage levels after paying your car off, we recommend getting quotes from multiple providers. That way, you’ll have a better sense of what you might pay. Sourcing quotes from Geico and Progressive is a great way to start your search.

Geico: Affordable for Most Drivers

Geico is the second largest insurance provider in the nation. Policyholders praise the company’s customer service and easy claims process. Based on our research, Geico tends to offer below-average rates for full-coverage auto insurance with opportunities like DriveEasy to save even more. In addition to the six standard types of insurance, Geico has optional coverages such as mechanical breakdown insurance and roadside assistance.

Read more: Geico insurance review

Do I Need Full Coverage on a Financed Car? (2024) (3)

Progressive: Low Rates for High-Risk Drivers

Progressive has a reputation for offering some of the most affordable rates for people typically considered high-risk drivers. For those looking to improve their driving habits, Progressive’s telematics insurance program, Snapshot, is a good choice. It monitors how you drive and rewards good practices with discounts.

Progressive also offers many other discounts to keep insurance costs lower, including savings for good students and customers with more than one car on their policies.

Read more: Progressive insurance review


Neglecting to carry a full-coverage policy on a financed car would probably violate your loan contract. In that case, the lender could repossess your car. It may instead opt to get force-placed insurance, which generally costs you much more than coverage you’d find on your own.

Most lenders won’t let you cancel your car insurance until your vehicle is paid off. If you change insurance providers, let your lender know. Have your existing and new policies overlap for at least a day so you don’t have a lapse in coverage or violate your agreement with your lender.

Whether your car is financed or paid off, you’ll still need to meet your state’s minimum insurance requirements.

Not paying your car insurance premium could result in the outstanding balance being sent to collections. Having debts go to collections will show up on your credit report and will lower your credit score.

Your insurance provider would probably cancel your policy after a number of missed payments, so you’d have a lapse in coverage. This would make it harder for you to find affordable coverage in the future.

Our Methodology

Because consumers rely on us to provide objective and accurate information, we created a comprehensive rating system to formulate our rankings of the best car insurance companies. We collected data on dozens of auto insurance providers to grade the companies on a wide range of ranking factors. The end result was an overall rating for each provider, with the insurers that scored the most points topping the list.

Here are the factors our ratings take into account:

  • Cost: Auto insurance rate estimates generated by Quadrant Information Services and discount opportunities were both taken into consideration.
  • Coverage: Companies that offer a variety of choices for insurance coverage are more likely to meet consumer needs.
  • Reputation and experience: Our research team considered market share, ratings from industry experts and years in business when giving this score.
  • Availability: Auto insurance companies with greater state availability and few eligibility requirements scored highest in this category.
  • Customer experience: This score is based on volume of complaints reported by the NAIC and customer satisfaction ratings reported by J.D. Power. We also considered the responsiveness, friendliness and helpfulness of each insurance company’s customer service team based on our own shopper analysis.

Our credentials:

  • 800 hoursresearched
  • 45 companiesreviewed
  • 8,500+ consumerssurveyed

*Data accurate at time of publication.

If you have questions about this page, please reach out to our editors at

Do I Need Full Coverage on a Financed Car? (2024) (2024)


Do I Need Full Coverage on a Financed Car? (2024)? ›

Lenders and lessors typically require full coverage if you finance or lease your vehicle. Depending on which state you live in, you may be required to carry coverage such as uninsured/underinsured motorist coverage or personal injury protection.

At what car value should you drop full coverage? ›

Your vehicle holds a low value: As with collision, consider dropping comprehensive coverage if your vehicle's market value is lower than a few thousand dollars. Figure in your deductible as well and the potential insurance payout may not be worth the price of the coverage.

What is the minimum full coverage for a financed car in Texas? ›

Texas law requires you to have at least $30,000 of coverage for injuries per person, up to a total of $60,000 per accident, and $25,000 of coverage for property damage. This is called 30/60/25 coverage. Think about buying more liability coverage.

What is the minimum amount of coverage that you must have on your vehicle? ›

Here are the minimum liability insurance requirements (per California Insurance Code §11580.1b): $15,000 for injury/death to one person. $30,000 for injury/death to more than one person. $5,000 for damage to property.

Do you have to have full coverage on a financed car in NC? ›

Comprehensive insurance covers repair or replacement costs if your car is damaged by falling objects, natural disasters, floods, fires, theft, vandalism, or animals. Lenders usually require collision and comprehensive in addition to the insurance you must have under North Carolina law when you finance a car.

Is it worth having full coverage on a 10 year old car? ›

Between 10 and 15 years after a vehicle's model year, full coverage is a poor investment. While the cost of full coverage by itself likely won't be more than what a car is worth, the cost of insurance is more likely to be higher than the value of the car after an accident.

Is it better to have collision or comprehensive? ›

If your car is damaged in a road collision with another car or object and you're at fault, only your collision coverage can help pay to repair it. Only comprehensive coverage covers losses caused by contact with animals, civil disturbances, fires, natural disasters, theft, and vandalism.

What happens if you cancel insurance on a financed car? ›

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.

What does full coverage mean? ›

Comprehensive coverage is just one type of coverage included in a “full coverage” auto insurance plan. Remember, “full coverage” isn't an actual type of coverage, but a general term used to describe a policy that combines Liability, Comprehensive, and Collision coverages.

What are the three types of generally mandatory minimum vehicle insurance in Texas? ›

Texas auto insurance requirements: 30/60/25

This means you are required to have: $30,000 in bodily injury per person. $60,000 in bodily injury per accident. $25,000 in property damage per accident.

How do you decide how much coverage you need? ›

To determine how much coverage you need, take an inventory of your belongings, especially items with higher value like jewelry, electronics and collectibles. Once you understand what you have and its value, you can decide if the predetermined limits on your policy offer adequate coverage.

What are the best limits for auto insurance? ›

You can check with your state's department of insurance or department of motor vehicles to understand what's required. That said, insurance experts recommend at least $100,000 per person and $300,000 per accident for bodily injuries, and $100,000 for property damage, or 100/300/100.

In what states is car insurance not mandatory? ›

States With Minimal Car Insurance Requirements

Although New Hampshire and Virginia are the only states with no auto insurance requirements, Florida and New Jersey are the other two that don't require bodily injury liability, which pays for the other party's injuries in the event of an accident that you caused.

Does USAA require full coverage on a financed car? ›

Most lenders require comprehensive coverage when you lease or finance your vehicle.

What is a deductible in car insurance? ›

An auto insurance deductible is what you pay “out of pocket” on a claim before your insurance covers the rest. Collision, comprehensive, uninsured motorist, and personal injury protection coverages all typically have a car insurance deductible. You typically have a choice between a low and high deductible.

What is forced place insurance? ›

Force-placed insurance, also known as creditor-placed, lender-placed or collateral protection insurance is an insurance policy placed by a lender, bank or loan servicer on a home when the property owners' own insurance is cancelled, has lapsed or is deemed insufficient and the borrower does not secure a replacement ...

Should you keep full coverage on a paid-off car? ›

Once you've paid your vehicle off, you're no longer subject to any insurance requirements other than your state's minimums. If you want to drop some types of coverage to save money, that's up to you. Either way, have your insurer remove the lender as a lienholder on your policy.

How high should I make my car insurance deductible? ›

The most common deductible amount is $500, but often you'll have the ability to choose your deductible. Selecting a high deductible usually gets you a lower car insurance premium, while choosing a low deductible tends to result in a higher premium. Some types of car insurance don't require a deductible.

Is it worth having comprehensive insurance on an old car? ›

Do I need comprehensive insurance on an old car? If you don't have a loan or lease on your car, comprehensive insurance likely isn't required. And if the vehicle isn't worth much, it may not make financial sense to keep the coverage.

Is it better to have a higher or lower car insurance deductible? ›

If you're leasing or financing your car or living on a tight budget, a lower deductible can give you more peace of mind. If you have a clean driving record or live in a low-traffic city, getting a high deductible could save you more money in the long run.

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