Do you plan to take out an auto loan to buy your next vehicle? Banks and lenders require minimum coverage for a financed car, usually in the form of a full coverage policy that combines comprehensive, collision, and liability insurance. This policy allows the financing company to protect its asset, the vehicle, which secures the loan in case of default. Review the details of full coverage auto insurance so you’ll be financially prepared to drive off the lot with your new car.
What Is Full Coverage?
While every insurance company defines full coverage differently, usually this term describes a combination of collision, comprehensive, and liability auto policies. Most states only require liability insurance, which pays for damage and medical expenses for other affected individuals if you cause an accident. Collision insurance pays for damage to your own vehicle, regardless of who caused an accident. When you use your collision policy, you must pay a deductible.
Comprehensive insurance pays for non-collision damage or loss. You can make a claim against this type of coverage, which also requires a deductible, if your vehicle has been stolen or damaged by fire, vandalism, or extreme weather.
While these three policies represent the most common components of full coverage, you can also add optional policies depending on your needs. Examples include underinsured and uninsured motorist coverage, which pays for damages after a crash with an uninsured driver, and personal injury protection (PIP) insurance, which covers your own medical costs after an at-fault accident.
Read the lender requirements carefully before you get insurance quotes to make sure you comply with all the terms. For example, AutoInsurance.org reports that some banks require you to carry a policy with a deductible of no higher than $500 to ensure you can seek the necessary vehicle repairs after an accident.
How Much Does Full Coverage Cost?
According to data from AutoInsurance.org, the average U.S. driver pays an $80 monthly premium for full-coverage car insurance. WalletHub reports that full coverage costs an average of $1494 for an annual premium, compared to $588 on average per year for state minimum insurance.
CarInsurance.com breaks down an average annual rate of $1758 a year for full coverage based on the following limits:
- Collision and comprehensive coverage with a deductible of $500
- $100,000 in bodily injury coverage per person for at-fault liability
- $300,000 in bodily injury coverage per accident for at-fault liability
- $100,000 in property damage coverage for at-fault liability
Your quote will notate this amount as 100/300/100. The website notes that the average premium cost of $954.99 includes $299.73 for collision coverage, $138.87 for comprehensive coverage, and $516.39 for liability coverage.
Should I Consider Additional Insurance?
In addition to the minimum coverage for your financed vehicle, you may want to buy GAP insurance. According to the Zebra, a Guaranteed Auto Protection (GAP) policy pays the balance of your car loan if you total the vehicle before you pay it off. Often, the value of the remainder of the loan exceeds the fair market value of the vehicle paid out by the insurance company in this situation.
Other optional coverage types include rental reimbursement, roadside assistance, and umbrella insurance to protect assets beyond the standard liability policy limits. Your personal preference determines whether you should add these options or save money on your premium by opting out.
How Can I Save on Full Coverage Insurance?
While full coverage insurance costs more than your state minimum required coverage, you can still use strategies to save money on your premium. Some of the factors that affect the cost of car insurance include the theft rates for your vehicle make and model, the overall value of the car, the horsepower of the engine, and the safety features and crash test ratings of the vehicle.
Getting quotes from various insurers can help you find the most affordable full coverage policy for your financed vehicle. Your driving record, the town and state where you live, and many other variables impact auto insurance costs at varying levels based on the company.
The way you pay for coverage also impacts how much you will pay. If you decide to pay the full amount of your cost upfront, you can often save money compared to the cost of monthly or periodic payments. Many insurance providers also offer electronic funds transfer or EFT discounts when you arrange for automatic bank transfers to pay your bill.
If you have more than one vehicle in your household, you can typically save money by bundling your policies with the same insurance company. You can also use this strategy if you have a homeowner’s or renter’s insurance policy.
Maintaining a safe driving record helps keep the cost of your auto policy low. Your premium will increase by the following amounts on average after these incidents, according to data from the Zebra:
- $168 to $230 after speeding, depending on the type of ticket
- $383 after an at-fault accident claim
- $519 after a reckless driving ticket
- $549 after an arrest for driving under the influence of drugs or alcohol
- $565 after a ticket for racing another vehicle
You might also be able to save with a telematics program. You use a device or smartphone app that tracks your driving behavior and adjusts your insurance rates accordingly. According to The Zebra, you can save an average of up to 30 percent with RightTrack from Liberty Mutual, up to 40 percent with SmartRide from Nationwide, up to 15 percent with Drive Safe & Safe from State farm, up to 25 percent with Drivewise from Allstate, and up to $130 with SnapShot from Progressive.
If you do not maintain minimum auto coverage for a financed car, the bank can repossess the vehicle or force you to make a higher monthly payment based on the increased financial risk. When you pay off the car loan and receive the title, you can reduce your policy from full coverage to the minimum required coverage in your state.
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