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Can you have liability insurance on a financed car?

Usually not. Your loan asks for more.

You usually cannot have liability insurance on a financed car by itself: most lenders also require collision and comprehensive, the coverage for your own car, until the loan is paid off. State laws do not require that coverage, but your loan contract usually does.

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Most lenders require you to have comprehensive and collision coverage and leave the choice of the insurance company up to you.Washington’s Office of the Insurance Commissioner, in its guide to how auto insurance works.

Two sets of rules while you owe

Collision pays for your own car after a crash. Comprehensive pays for it if it is stolen, burned, flooded or vandalized. Your state’s own liability amounts are on the page Auto liability insurance only.

What stays your choice

  • The insurance company. Lenders leave that choice to you.
  • The price you pay. Companies charge different rates for the same coverage.
  • Liability only, later. Once the loan is paid off, no state law makes you insure your own car.

If you drop them while you owe

  • Your lender can insure the car itself. The loan contract usually gives it that right.
  • That insurance protects only the lender. It does not protect you.
  • You are charged for it. It usually costs a lot more than a policy you find yourself.

From: the Consumer Financial Protection Bureau (CFPB), Washington’s Office of the Insurance Commissioner, the Texas Department of Insurance and the National Association of Insurance Commissioners (NAIC).

Where are you with the car?

The answer changes with where you are.

Pick the one that fits.

Buying it with a loan

Before you drive it home

To get the loan, you must have insurance that covers the car itself.

What the loan asks for

Most loan agreements require collision and comprehensive for the whole loan, with the lender listed on your policy.

Who you buy it from

Any insurance company you choose.

From: Consumer Financial Protection Bureau (CFPB) · Florida Department of Financial Services · Washington’s Office of the Insurance Commissioner.

Paying on a loan

While you owe

Your loan terms most likely require collision and comprehensive coverage.

If you drop them

Your lender buys its own coverage and adds the cost to your loan payment.

What you can still do

Compare what several companies would charge for that same coverage.

From: Wisconsin Office of the Commissioner of Insurance · Texas Department of Insurance · California Department of Insurance.

Leasing it

Your lease decides

A lease has to state the types and amounts of coverage you must carry.

It may ask for more

The leasing company may require more insurance than you normally carry.

If the coverage stops

You are in default of your lease: if the car stays uninsured, the leasing company may end the lease and take the car back.

From: Consumer Financial Protection Bureau, Regulation M · Federal Reserve Board, Vehicle Leasing guide.

My lender added its own insurance

Who it protects

That insurance protects only the lender, not you, and the lender charges you for it.

What it costs

It is usually a lot more expensive than a policy you find yourself.

How it ends

The lender can require you to pay for it until you get your own auto insurance.

From: Consumer Financial Protection Bureau (CFPB) · National Association of Insurance Commissioners (NAIC).

Companies charge different prices for the same coverage.

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Common questions

What happens if I put liability insurance on my financed car?

Most loan contracts require collision and comprehensive too. Without them, the contract usually lets your lender buy insurance for the car and charge you for it. That insurance protects only the lender, and it usually costs a lot more than a policy you find yourself.

What insurance coverage is needed for a financed car?

Most lenders require collision and comprehensive coverage until the loan is paid off, with the lender listed on your policy. That is on top of the liability coverage your state requires.

What happens if you don’t put full coverage on a financed car?

No policy is named full coverage. People use the words for liability with collision and comprehensive, which most lenders require. Without the last two, your lender buys its own coverage and adds the cost to your loan payment.

When can you switch to liability only?

Once the loan is paid off. State laws do not require coverage for your own car, but your lender may until then.

Can you pick your own insurance company on a financed car?

Yes. Lenders set the coverage and leave the choice of the insurance company to you.

Is it different for a leased car?

A lease has to state the types and amounts of coverage you must carry, and a leasing company may require more insurance than you normally carry.

Sources

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