If you own a vehicle then you are legally required to make sure you have insurance in place. Of course, having the right insurance also provides you with peace of mind when it comes to dealing with the financial implications of an accident.
When you consider that millions of property damage and injury-related road accidents occur in the US alone, every year, you can see how important this is. If you are looking to finance a vehicle, you may be wondering what effect this has on you getting the insurance you need.
Limited choice of insurance cover when a vehicle is financed
The main effect that financing a vehicle has on car insurance is the limitations it puts on the choice of insurance cover. Let’s look at this in more detail.
If you pay for a vehicle using your own cash then you can usually choose to have minimum state liability insurance in place. This means you can save on the cost of your insurance policy.
However, if you choose to finance your vehicle at any point, there are minimum insurance requirements you have to adhere to. These requirements are put in place by the lender who will expect you to have comprehensive and collision cover for the vehicle. This is obviously going to cost you more money.
If you are going to drive the car for only part of the year, and store it for the remaining months, it’s worth mentioning this to the lender. You may be able to reach an agreement where you can reduce your car insurance coverage to comprehensive only while the car is in storage. The lender does not have to agree to this but they may do so if you explain the circumstances.
Listing a lender as a loss payee
If you choose to finance your vehicle, you will also need to make sure the lender is listed as a loss payee on your insurance policy. They may also need to be listed as an additional insured. Listing the lender in this way will not cost you any money.
However, you do need to know that information is provided to loss payees by insurance companies. This means, if you change your details with the insurance company, such as a change of address or insurance cover, the lender will be notified.
Financing a car can have an effect on a car insurance policy. This is mainly because the lender will require the vehicle owner to have both comprehensive and collision insurance in place. In several cases, this will mean the vehicle owner ends up paying more for their car insurance policy.
The lender will also need to be listed as a loss payee on the insurance policy. This means they will be notified if the owner of the vehicle notifies the insurance provider of any changes.
It’s important to be fully aware of these effects and to take them into account, before making any car financing decisions.