You must have your state’s required minimum liability insurance coverage to drive legally. But if you financed your car, you’ll need more protection — full coverage insurance that includes collision and comprehensive.

Here’s what you need to know about the requirements for full coverage insurance on a financed car.

Key Highlights
  • Most lenders require full coverage car insurance because it protects the lienholder from loss.
  • The average annual car insurance rate for full coverage is $1,682 for a 100/300/100 policy with $500 comprehensive and collision deductibles.
  • If you drop the required auto insurance coverages from a financed vehicle, it violates your finance contract.
  • If you’re financing a car and making payments, you should have a full-coverage car insurance policy.

What are the car insurance requirements for a financed car?

Most people don’t buy a car outright – they get a car loan to pay for it. That means the lender still owns the car until the loan is paid off.

Are there car loan insurance requirements? Yes. The lender will want you to have full coverage car insurance on the financed car to protect their investment.

Otherwise, if the car is damaged or totaled, the lender would have to get the money from you for repairs or to replace it, which is much harder than having the insurance company pay for it.

Full coverage car insurance consists of the following:

  • Liability insurance – pays for property damage and injuries to others in accidents you cause.
  • Collision insurance – pays for damage to your car regardless of who caused the accident.
  • Comprehensive insurance – pays for damage to your car from flooding, hail, fire, vandalism, falling objects or animal collisions, and also covers theft.

Does auto insurance cost more for a financed car?

Regarding the car itself, insurance premiums are based on the value of the vehicle being insured, not the amount owed on the car.

So, suppose you want the same coverage on a financed car vs. an owned car. In that case, the insurance premiums should not differ as long as all other variables are the same: The car make, model, appraised value, coverage limits, location and driver profile.

Do I need gap insurance on a financed car?

Gap insurance helps bridge the gap between what you owe on a totaled car and what your insurance coverage pays out. Since car insurance covers the actual cash value of the vehicle, not what you owe to a lender on a car loan, gap insurance can be a wise choice.

Tip iconExample

Suppose you get a loan to buy a car for $22,000 and total it in an accident. Your comprehensive or collision insurance will pay up to the actual cash value, typically lower than the loan amount.

In this case, let’s say it’s $16,000. But if you still owe more than that on the loan – say $19,000 – you would have to pay the difference for a car you can’t drive. Gap insurance would cover the $3,000 difference.

How much is full coverage car insurance?

The average car insurance rate for full coverage is $1,682 a year for the following, based on’s 2022 rate analysis. The average for liability only is $637 per year, and the state minimum average costs $511 per year.

Liability insurance is commonly written like this: 100/300/100. Here’s what that means:

  • $100,000 in liability injury coverage, the maximum payout per person for medical bills of those you injure in an accident you cause.
  • $300,000 in liability injury coverage per accident is the maximum paid out for all injured in an accident you cause.
  • $100,000 in liability property damage, pays to repair the damage you cause to other cars and property.

Liability insurance is available in lower limits, such as 50/100/50, but generally, lenders require the above limits.

However, what you pay will depend on your own driver profile – your age, driving record, type of car you drive, where you live – and each insurer will calculate your price differently based on those factors.

Comparing car insurance rates is the best way to save money since rates vary significantly among carriers.

Guide: Which companies sell gap insurance?

FAQs: Do I need full coverage insurance on a financed car?

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

Dropping required auto insurance coverages from a financed vehicle violates your finance contract and may jeopardize your loan.

Also, the lender could place single-interest coverage (force-placed insurance) on the vehicle and add the premium to the loan. This type of coverage is expensive and does not provide any coverage for you, just the lender.

Can I drop full coverage auto insurance once my car loan is paid off?

Yes. You can drop full coverage on your car once it’s paid off, but that doesn’t mean you should. Would you have enough savings to replace your car if it was stolen or destroyed in a crash? If not, you should consider maintaining full coverage car insurance.

Do I need full coverage on a financed car if the car is used?

Yes. If you’re financing a car, whether used or new, and you’ll be making payments, you should have a full coverage car insurance policy. And there’s a good chance that your lender will require it.

You don’t want to be in the position where you buy any car – used or new – and you wreck it while you still have 42 payments before it’s paid off. If it would be difficult to make payments on a car you no longer can drive, then you should get full coverage, and again, your lender may require that you’re insured before you drive your car off the lot.

Learn more: Do I need full coverage on my new or used car?

Do banks have different rules on minimum full coverage for a financed car?

Generally, no. Banks may differ depending on state laws, but, as a rule, most financial institutions will require you to have full coverage if you’re financing a vehicle purchase. After all, until you pay off your car, it’s not your car: It belongs to the lender.

Do states have different rules on full coverage auto insurance for financed cars?

Yes. Each state regulates insurance differently. There are no national car insurance standards or any insurance. Check with your state’s DMV or Department of Insurance if you have questions about your state’s insurance requirements. Or, call your car insurance company, which can advise you on whether you need full coverage for your car.

Methodology commissioned Quadrant Information Services to pull rates in 2022 for a 40-year-old male driver with a good driving record, a 12-mile commute to work and full coverage insurance (100/300/100 with a $500 deductible).

Laura Longero

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Laura Longero

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Laura is an award-winning editor with experience in content and communications covering auto insurance and personal finance. She has written for several media outlets, including the USA Today Network. She most recently worked in the public sector for the Nevada Department of Transportation.

John McCormick

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John McCormick

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John is the editorial director for, and Before joining QuinStreet, John was a deputy editor at The Wall Street Journal and had been an editor and reporter at a number of other media outlets where he covered insurance, personal finance, and technology.

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Leslie Kasperowicz

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Geoff Williams is a freelance journalist and author in Loveland, Ohio. He has been writing about insurance and personal finance since the mid-2000s. His work has appeared in numerous publications, including Life magazine, Ladies’ Home Journal, The Washington Post, CNNMoney, Entrepreneur, and U.S. News & World Report.