When Financing a Car, What Insurance Do I Need?

Are you planning to finance a car? If yes, then it’s essential to understand the importance of having the appropriate car insurance. Car insurance is designed to protect you financially in case of an accident or theft. However, the type of insurance you need will depend on the financing option you choose. In this article, we’ll discuss the different types of insurance policies you need when financing a car.

Liability Insurance

Liability insurance is the most basic type of car insurance coverage required by law in most states. It covers damages or injuries you cause to others in an accident. Liability insurance does not cover damages to your car or injuries you sustain in an accident.

Liability insurance is usually divided into two parts: bodily injury liability and property damage liability. Bodily injury liability covers medical expenses, lost wages, and other expenses related to injuries you cause to others in an accident. Property damage liability covers the cost of repairing or replacing property damaged in an accident.

The minimum amount of liability insurance required varies by state. However, it’s essential to purchase more than the minimum required to ensure you’re adequately covered in case of an accident. If you’re financing a car, your lender may require you to purchase a specific amount of liability insurance.

Collision Insurance

Collision insurance covers damages to your car in case of an accident. It also covers damages caused by hitting an object or if someone hits your car and is uninsured. Collision insurance is not required by law, but if you’re financing a car, your lender may require you to purchase it.

Collision insurance usually has a deductible, which is the amount you pay out of pocket before the insurance company covers the rest. The higher the deductible, the lower the premium. However, it’s essential to choose a deductible you can afford to pay in case of an accident.

In the next sections, we’ll discuss comprehensive insurance, GAP insurance, and conclude with a recap of the importance of having the appropriate insurance when financing a car.

Collision Insurance

As we mentioned earlier, collision insurance covers damages to your car in case of an accident. This type of insurance covers repairs or replacement of your car, regardless of who is at fault. If you’re financing a car, collision insurance is essential because it protects your investment. Without collision insurance, you would be responsible for paying for repairs or replacement out of pocket.

Collision insurance coverage is not unlimited. The coverage amount is usually limited to the actual cash value (ACV) of your car. The ACV is the value of your car, taking into account its age, mileage, and condition. In case of total loss, the insurance company will pay the ACV of your car minus your deductible.

Comprehensive Insurance

Comprehensive insurance covers damages to your car that are not caused by an accident. This type of insurance covers theft, vandalism, fire, natural disasters, and other non-collision-related incidents. Comprehensive insurance is not required by law, but if you’re financing a car, your lender may require you to purchase it.

Comprehensive insurance coverage is also limited, and the coverage amount is usually limited to the ACV of your car. If your car is stolen or damaged beyond repair, the insurance company will pay the ACV of your car minus your deductible.

Having comprehensive insurance is important when financing a car because it protects your investment from non-collision-related incidents. Without comprehensive insurance, you would be responsible for paying for repairs or replacement out of pocket.

In the next section, we’ll discuss GAP insurance, which is also essential when financing a car.

GAP Insurance

GAP stands for Guaranteed Asset Protection. It’s an optional insurance policy that covers the difference between the actual cash value of your car and the amount you owe on your car loan. In other words, if your car is totaled or stolen, and your insurance company pays less than what you owe on your loan, GAP insurance will cover the difference.

GAP insurance is essential for financed cars because cars depreciate rapidly within the first few years of ownership. If your car is totaled or stolen, and you don’t have GAP insurance, you could end up owing money on a car you no longer own.

While GAP insurance is not required by law or your lender, it’s essential to consider purchasing it to protect yourself financially.

Conclusion

In conclusion, when financing a car, it’s crucial to have the appropriate insurance coverage. Liability insurance is the most basic type of insurance required by law, but it may not be enough to protect you financially in case of an accident. Collision insurance covers damages to your car in case of an accident, and GAP insurance covers the difference between the actual cash value of your car and the amount you owe on your car loan.

It’s important to purchase insurance coverage that meets your needs and protects you financially in case of an accident or theft. When financing a car, your lender may require you to purchase specific types and amounts of insurance coverage. However, it’s essential to consider purchasing additional coverage to ensure you’re adequately protected.

At Wiki Mic, we recommend discussing your insurance needs with a licensed insurance agent to ensure you have the appropriate coverage. Remember, having the right insurance coverage can provide you with peace of mind and protect you financially in case of an accident.