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Do Auto Loans Require Comprehensive Insurance?

last updated November 19, 2013 by

When you take out a loan from a bank, or when you finance a car at a dealership, the lender has a financial stake in your car.  If you were to default on the car, or become involved in an accident, they would have to find a way to make their money back to avoid a loss on the loan.  For this reason, most lenders require that all borrowers carry comprehensive insurance on any financed car.  There are many car insurance providers, but Complete Auto Loans has a few tips that will help get the best value for your monthly insurance payment.

Liability Coverage

In most states, you will have no choice but to carry a liability policy if you want to drive on city or state roads.  Liability insurance covers the other drive in the event that you were to have a multi-car accident, thus ensuring that there will be money to pay for damages to the other party’s car or medical bills that they may incur.  Every state has their own minimum liability policy, but there is virtually no incentive to carry a greater amount.  While the ‘victim’ of a car accident may try to recoup some of their damages in civil court, this is only an important consideration if you have a great deal of personal wealth that you are trying to protect.

Reducing the Cost of Comprehensive Insurance

Comprehensive insurance, on the other hand, covers your own vehicle in the event of an accident.  Auto lenders make you carry comprehensive insurance because it takes the burden of repair costs off of their shoulders in the event of an accident that leaves you unable or unwilling to pay back your auto loan.  Comprehensive insurance scales in cost depending on the price of the car you are insuring, but also depending on the size of your deductible.  The deductible is the amount that you must pay out of pocket for any repairs before your insurance starts to kick in.  A common deductible is $500, meaning that the insured party must pay $500 towards any repair before the insurance covers the rest.  The higher deductible you are willing to pay, the cheaper the insurance policy.  Just make sure not to pick a deductible too high for you to actually pay, as this could prevent you from getting necessary repairs.

Finding an Insurance Policy

Unlike many lenders, Complete Auto Loans does not try to convince its borrowers to go to a particular insurer.  We find that insurance companies are difficult to predict, and different borrowers might get wildly different rates (and have totally different experiences) depending on their driving history and their demographics.  It is certainly nice to have an insurance company with local representatives, so check with your credit union and with local insurance brokers to see your options.