How much insurance do I need for my financed car?

How much insurance you need for a financed car depends on the financing company. In most cases, you will need to have more than the state’s minimum liability coverage to meet financed car insurance requirements. Auto insurance for a financed car often has higher coverage levels, like comprehensive coverage. Enter your ZIP code below to get free financed car insurance quotes from local companies.

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Tonya Sisler has a Bachelor’s Degree from the University of South Carolina in Journalism and has worked for 15+ years in management. She has also completed a proofreading certification and is currently a professional writer.

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Brad Larson has been in the insurance industry for more than a dozen years. He started out as a claims adjuster for a national carrier. He has since switched to the agency side of the business. Brad is licensed in all P&C lines.

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Reviewed by Brad Larsen
Licensed Auto Insurance Agent

UPDATED: Oct 27, 2020

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Things to know...

  • When you finance a car, you must comply with the finance company’s contractual terms at all times
  • One term that is a condition of every loan is that you maintain insurance in your name as long as there is a balance
  • You must carry more than just state minimum insurance limits to meet financed car insurance requirements
  • All finance companies require their borrowers to carry full coverage which consists of comprehensive and collision
  • In most cases, unless you’re leasing a car, the finance company doesn’t care what limits of liability you carry

When you buy your very first car, you’ll probably scrape together money and save your paychecks until you can pay cash for an older vehicle on the private market. If you’re lucky, your parents might even match your savings so that you can get a better car.

If you drove when you were still in high school, you probably had an old car that wasn’t pretty but still got the job done.

Fast-forward to the present year, and you now have a regular car payment that you have to fork over every month for 48, 60, or even 72 months. That’s because 84.5 percent of car buyers who acquire a new car will rely on financing.

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How are insurance requirements regulated?

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Contrary to popular belief, auto insurance is not regulated at the federal level. It was once the Federal government’s job to regulate insurance companies and set requirements, but that changed decades ago.

Now, each state has its own governing body called the Department of Insurance.

It’s the state commissioner’s job to regulate agents and companies that sell products.

State officials will also enforce limit requirements and update them when it is deemed necessary.

Usually, if there is a high level of claims and the current limits won’t repair minor damage, raising the limits can be proposed and then passed into legislation.

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What are lender insurance requirements?

People assume car insurance is only a state-enforced requirement, but that isn’t the case.

While the Department of Motor Vehicles is the only government agency you have to provide proof of insurance, you’ll still be required to prove you have coverage elsewhere.

If your car is paid off, you’ll never have to worry about fulfilling financing requirements because you have the title in hand. It’s when you’re the borrower on an existing loan that you’ll have to comply with the requirements set by your lender.

The reason for the insurance requirements is because the lender owns the car and wants it to be insured against loss.

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Is liability insurance a lender requirement?

If you are financing a vehicle for purchase, there will be no part of the finance contract that says anything about maintaining liability insurance.

Liability insurance is coverage that pays for expenses that are related to bodily injury and property damage when you’re the liable driver. It doesn’t pay you for your damages, but it does pay for expenses incurred by the other party.

Just because third-party is a coverage that your lender isn’t concerned with doesn’t mean that you simply don’t need it. You still have to comply with state law no matter what your requirements are through the finance company.

In virtually every state in the nation, you must carry at least a small amount of liability coverage.

If you’re going to lease a vehicle, the rules change. You’re obligated to buy both sufficient physical damage coverage and also higher limits of liability.

The liability requirements are in place to alleviate the responsibility of the lessor to insure or register the vehicle. Typically, you must have the following limits for leased vehicles:

  • $100,000 per person for bodily injuries
  • $300,000 per accident for bodily injuries sustained by multiple occupants
  • $100,000 per accident for property damages

What coverage options are required by the lender?


The finance company is only concerned with the property you’re financing. Since they own the car, they want to be sure that you have sufficient coverage to pay for damage to it after an accident.

If you don’t have access to a fully functional car and you chose to let the coverage lapse, chances of you continuing to pay on the loan are low.

Physical damage consists of two different types of personal car insurance. These two forms of coverage are called comprehensive and collision.

Each of them will pay up to your car’s current fair market value minus whatever deductible you’re carrying depending on how much damage your car sustains. Here’s what each coverage pays for:

  • Comprehensive – coverage pays for damage caused by fire, theft, flood, vandalism, falling objects, and other perils that are not excluded
  • Collision – coverage pays for damage caused by a collision or when the vehicle is overturned

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Do you have to select a specific deductible?

Most insurers offer their customers the choice of any deductible they offer. This could range between a low $50 option and a high $2000 option.

You have the freedom to choose with your insurer, but your lender might not be happy about it when you select a high deductible. A lot of finance companies limit deductibles to $1000 unless you have a luxury vehicle.

Why is a loss payee clause required?


Another lender requirement is the loss payee clause. This relates to your insurance because it requires you to list your lender as the loss payee on your insurance. If you have claims check made payable to you, the loss payee on the policy must sign off on it.

How much insurance you need depends on your budget and your assets. Most experts recommend that you carry at least 10 times higher than what it required by law regarding liability.

To get insurance quotes on your financed vehicle, use our online comparison quoting tool and you can easily find the best deal.



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