Car insurance for financed vehicles

Do I need car insurance if I have a car loan?

Even with all the work you put into maintaining your car, if you are making payments on it, you are not actually the vehicle owner yet — your lender or lessor is. In fact, depending on whether your vehicle has a lease or a loan, your insurance company will include your bank on your auto policy as an additional insurance and/or loss payee. Since the financial institution has a vested interest in your vehicle's physical condition, you will likely need to carry full coverage insurance.

If the car is damaged or totaled, the financial institution needs to know that its investment is protected. Therefore, banks typically require comprehensive and collision coverage on financed vehicles. Drivers of leased vehicles are also normally required to carry higher levels of liability coverage.

• Liability coverage: Liability insurance pays up to the policy limits for damage and injuries that you cause to others. Liability coverage is split into two parts: bodily injury liability and property damage liability, both of which generally have minimum limits required by law. Leased vehicles are usually required to have higher liability limits of 100/300/50.
• Collision coverage: Collision coverage is designed to pay for damage that occurs from collisions, including with other cars and stationary objects, regardless of who is at fault.
• Comprehensive coverage: Also called other-than-collision coverage, comprehensive coverage is designed to pay for non-collision damage, like animal damage, theft, storm damage and vandalism.

Almost every state has minimum car insurance requirements that you must meet or exceed to drive legally. With a financed vehicle, You will likely have to meet financed car insurance requirements from your lender or lessor in addition to the state minimum requirements. You can also choose to add optional coverage types, like gap insurance coverage, which could help you pay the difference between your loan amount and the cash value of your vehicle if it is totaled.

How much does insurance cost for a financed vehicle? 

The national average cost of car insurance is $2,458 per year for full coverage, based on rate data collected from Quadrant Information Services. While the average cost of minimum coverage is much cheaper at $678 per year, financed vehicles typically require full coverage insurance to meet the loan or lease requirements.

You should know that if you do not meet the insurance requirements set forth by your lender or lessor, your financial institution could take out force-placed insurance on your behalf. This means that a lender or lessor is buying a policy for you to cover the requirements of the loan, and the lender or lessor will generally add the cost of the policy to your monthly debt repayment. Force-placed insurance is often much more expensive than if you were to buy a policy on your own.

Is it cheaper to insure a leased or financed car?

Since most leasing companies have higher liability requirements than finance companies, the cost of car insurance for a leased vehicle can be higher than a vehicle with a loan, but usually not by much. You also may pay more on your auto loan insurance to meet the lender’s requirements, such as purchasing full coverage, than you would if you owned the car outright and chose less coverage or liability-only insurance. That being said, even if you own your car with no loan or lease, you may still want to purchase full coverage for its additional financial protection.

The chart below features national full coverage car insurance rates at various liability levels to highlight the cost difference between a lease and a loan.

Financed car insurance rates by carrier

Depending on your driving characteristics, you may pay more or less than the national average for your financed vehicle. There isn't one carrier that is best for every driver, and comparing rates and coverage options can help you find the one that works best for your financed car. To see how insurers compare, below are full coverage rates from national carriers that meet financed car insurance requirements.

Ways to save on auto insurance for financed vehicles

The odds are that the insurance premium for your new vehicle is higher than the one you traded in. Plus, if your prior car only needed liability coverage, upgrading to an insurance policy with full coverage might give you sticker shock. Don't worry; you have options. Below are ways to help lower your insurance costs, from coverage selection to discounts. 

• Shop around: Shopping for auto insurance could potentially net you a lower premium. Car insurance companies all charge different rates for coverage based on their proprietary underwriting formulas, so comparing quotes may help you find the cheapest auto insurance company for your needs.
• Consider your vehicle type: The vehicle you choose will impact your car insurance rates. Makes and models that are considered luxury vehicles, sport cars or foreign brands may see higher car insurance rates as they may have a higher value, be seen as riskier to insure and have higher repair costs. 
• Look for discounts: While you’ll receive a base rate based on your personal factors, auto insurance discounts may help lower your total premium. Each insurer typically offers at least a few, and common ones include bundling, insuring multiple vehicles, and being accident- or claims-free. By making sure you apply all of the discounts you are eligible for to your policy, you might help ensure you are paying the lowest premium possible with your insurer. 
• Drive safely: Having a history of tickets, at-fault accidents or DUI convictions could make insurance companies view you as a high-risk driver. Even if you aren’t technically high risk, you’ll likely see a surcharge on your policy for driving incidents.
• Consider telematics tracking: Car insurance telematics programs are becoming increasingly popular and available. These programs track your driving habits — usually including the hours you drive, your speed, hard brakes, rapid accelerations and idle time — and may earn you a personalized discount if you are a safe driver. Make sure you  understand your company’s regulations, though, as some carriers will increase your premium if the data reveals unsafe driving practices.
• Increase deductibles: Your deductible is the amount you will pay if you file a claim for damage to your car. Full coverage has two car insurance deductibles: one for comprehensive and one for collision. Increasing your deductibles will likely lower your premium, since you are willing to take on more of the financial risk if you have damage. However, most insurance professionals recommend choosing levels you can afford to pay out of pocket on short notice. 

Terms to know when financing a car

When you finance or lease a car, there are several terms you should become familiar with. These terms will typically be listed on your financing or leasing agreement and dictate how much your car payment will be, including how the lender came up with that number.

Common vehicle financing terms

Frequently asked questions

Methodology

2024 Auto

Bankrate utilizes Quadrant Information Services to analyze November 2024 rates for all ZIP codes and carriers in all 50 states and Washington, D.C. Rates are weighted based on the population density in each geographic region. Quoted rates are based on a single, 40-year-old male and female driver with a clean driving record, good credit and the following full coverage limits:

• $100,000 bodily injury liability per person
• $300,000 bodily injury liability per accident
• $50,000 property damage liability per accident
• $100,000 uninsured motorist bodily injury per person
• $300,000 uninsured motorist bodily injury per accident
• $500 collision deductible
• $500 comprehensive deductible

To determine minimum coverage limits, Bankrate used minimum coverage that meets each state’s requirements. Our base profile drivers own a 2022 Toyota Camry, commute five days a week and drive 12,000 miles annually. 

These are sample rates and should only be used for comparative purposes.