CarInsurance.com Insights
- Lenders require that you carry full coverage car insurance on a financed vehicle to protect their investment in your vehicle.
- Full coverage includes liability, which is required in most states, any other legally required coverage, collision and comprehensive.
- The average annual car insurance rate for full coverage is $1,895. The average for a liability-only policy at 50/100/50 is $647 per year, and the state minimum average is $502 per year.
If you have financed a vehicle, your lender will require that you carry full coverage insurance, which includes liability, any other legally required coverages, collision and comprehensive. This ensures the vehicle will be repaired or replaced if damaged or destroyed.
Learn everything you need to know about the requirements for full coverage insurance on a financed car.
Do you need full coverage insurance on a financed car?
You must carry full coverage insurance if you have a loan or lease on the vehicle. Technically, your financing company owns your car until you make that final payment, so it often requires full coverage to protect its investment.
“When financing a vehicle, the lender usually requires specific types of coverage to protect [its] investment,” says Scott McAlpin, general manager at Airport Chrysler Dodge Jeep in Orlando, Florida. “Comprehensive and collision coverage is often mandatory to protect against damage to the vehicle itself. These requirements aim to ensure that the lender’s financial interest is safeguarded.”
If your vehicle was damaged or destroyed and you are not fully covered by insurance, your lender would have to pursue you for the money to repair or replace your vehicle, which would be more expensive than collecting from an insurance company.
In almost all cases, you must provide proof of insurance to your lender before you can drive the vehicle off the lot.
What full coverage really means
“Full coverage” isn’t a specific type of policy — it’s a term lenders and insurers use to describe a package that includes:
- Liability insurance: Required by state law, it pays for injuries or damages you cause to others but doesn’t repair your own car.
- Collision insurance: Pays for repairs or replacement of your car if you crash into another vehicle or object, regardless of fault.
- Comprehensive insurance: Covers non-collision events such as theft, fire, hail, flood, falling tree branches, or hitting an animal.
Keep in mind: Full coverage doesn’t mean everything is covered. It doesn’t pay for routine maintenance, mechanical breakdowns, or items stolen from inside your car.
How property damage liability works with gap insuranceIf you have a property damage liability of $50,000 (written as the third number here: 50/100/50) and you hit and total a $70,000 Tesla, you’ll be financially liable for the difference between the $50,000 your insurance pays and the remainder of the cost of the Tesla replacement — $20,000.
What are the car insurance requirements for a financed car?
While most states require drivers to carry liability coverage to drive on public roads, liability doesn’t repair your vehicle if you are in an accident – it only protects people and property that you damage with your vehicle.
If you have financed your vehicle, your lender will likely require that you carry full coverage so your car is repaired or replaced after an accident or other incident.
Financed vs. leased cars
The requirements for insurance differ depending on whether you finance or lease:
- Financed cars: Lenders typically require you to carry both collision and comprehensive insurance until your loan is paid off. That way, if the car is totaled, they can recover the balance owed.
- Leased cars: Leasing companies often go a step further. Along with collision and comprehensive, they may require higher liability limits and gap insurance to protect against depreciation.
Bottom line: If you owe money on your car — whether through a loan or a lease — expect to be required to maintain more than just the state minimum coverage.
Does auto insurance cost more for a financed car?
Because insurers usually require full coverage car insurance for a financed car, coverage can be more expensive than insuring your own car — when insuring your own car, you can choose lower coverage limits to bring down the cost of your insurance.
Full coverage insurance is more expensive than simply carrying liability coverage. The reason? Full coverage means your insurance company is now on the hook for replacing your vehicle if it is destroyed in an accident or other incident.
While carrying full coverage will certainly cost more, it’s not only a requirement from your financing company but also a good idea. Even after your vehicle is paid off, unless you can easily afford to replace it or cover an expensive repair bill, dropping to just liability is not a wise choice.
If your vehicle is old enough that you would not repair it after an accident, that is the time to consider dropping full coverage for liability only.
How much is full coverage car insurance?
According to our rate analysis, full coverage car insurance costs $1,895 annually, on average.
The cost of car insurance varies based on factors like your driving record, vehicle make/model, ZIP code, coverages, credit score (in most states) and age.
Full coverage car insurance rates by state
Like all insurance products, the cost of full coverage will vary depending on numerous factors, one of which is your state. Insurers consider weather, theft and claim rates and other factors when setting a premium, so full coverage rates can vary dramatically.
When it comes to full coverage car insurance, state averages clearly show how much premiums can vary with a shocking 145% difference between the most expensive state (Louisiana) and the cheapest state (Maine) for full coverage.
Louisiana often tops the most expensive car insurance lists due to a legal system that encourages litigation, even for minor accidents. Louisiana also has a higher-than-average car theft rate, which will always raise insurance rates.
Here are the top five most expensive states for full coverage car insurance:
- Louisiana: $2,883
- Florida: $2,694
- California: $2,416
- Colorado: $2,337
- South Dakota: $2,280
Severe weather (hailstorms and hurricanes), large cities, and high car theft rates are often the reasons that car insurance costs so much in these states.
On the flip side of the full coverage cost spectrum, the least expensive states for full coverage tend to be more rural, leading to fewer drivers on the road and fewer accidents.
The following are the top five cheapest states for full coverage:
- Maine: $1,175
- New Hampshire: $1,265
- Vermont: $1,319
- Ohio: $1,417
- Idaho: $1,428
Refer to the accompanying table for a detailed comparison of average full coverage car insurance rates by state.
| State | Annual full coverage rates | Monthly full coverage rates |
|---|---|---|
| Alaska | $1,676 | $140 |
| Alabama | $1,860 | $155 |
| Arkansas | $1,957 | $163 |
| Arizona | $1,812 | $151 |
| California | $2,416 | $201 |
| Colorado | $2,337 | $195 |
| Connecticut | $1,725 | $144 |
| Washington, D.C. | $2,157 | $180 |
| Delaware | $2,063 | $172 |
| Florida | $2,694 | $225 |
| Georgia | $1,970 | $164 |
| Hawaii | $1,517 | $126 |
| Iowa | $1,630 | $136 |
| Idaho | $1,428 | $119 |
| Illinois | $1,532 | $128 |
| Indiana | $1,515 | $126 |
| Kansas | $1,900 | $158 |
| Kentucky | $2,228 | $186 |
| Louisiana | $2,883 | $240 |
| Massachusetts | $1,726 | $144 |
| Maryland | $1,746 | $146 |
| Maine | $1,175 | $98 |
| Michigan | $2,266 | $189 |
| Minnesota | $1,911 | $159 |
| Missouri | $1,982 | $165 |
| Mississippi | $2,008 | $167 |
| Montana | $2,193 | $183 |
| North Carolina | $1,741 | $145 |
| North Dakota | $1,665 | $139 |
| Nebraska | $1,902 | $159 |
| New Hampshire | $1,265 | $105 |
| New Jersey | $1,902 | $159 |
| New Mexico | $2,049 | $171 |
| Nevada | $2,060 | $172 |
| New York | $1,870 | $156 |
| Ohio | $1,417 | $118 |
| Oklahoma | $2,138 | $178 |
| Oregon | $1,678 | $140 |
| Pennsylvania | $1,872 | $156 |
| Rhode Island | $2,061 | $172 |
| South Carolina | $2,009 | $167 |
| South Dakota | $2,280 | $190 |
| Tennessee | $1,677 | $140 |
| Texas | $2,043 | $170 |
| Utah | $1,825 | $152 |
| Virginia | $1,469 | $122 |
| Vermont | $1,319 | $110 |
| Washington | $1,608 | $134 |
| Wisconsin | $1,664 | $139 |
| West Virginia | $2,005 | $167 |
| Wyoming | $1,758 | $147 |
Affordable full coverage car insurance companies
Nationwide, Travelers and GEICO deliver policies at rates below $140 monthly for comprehensive coverage. It’s important to highlight that USAA’s services are exclusive to military personnel, veterans, and their relatives.
These insurers provide the most affordable average rates for full coverage. However, it’s essential to remember that the cost of your coverage will vary based on individual needs and driver specifics, so your actual premium could differ from the average quoted rates.
The table below shows the most affordable companies for full coverage insurance.
| Company | Annual full coverage rates | Monthly full coverage rates |
|---|---|---|
| Nationwide | $1,548 | $129 |
| Travelers | $1,587 | $132 |
| GEICO | $1,763 | $147 |
| State Farm | $1,975 | $165 |
| Progressive | $1,998 | $167 |
| Farmers | $2,387 | $199 |
| Allstate | $2,509 | $209 |
| USAA* | $1,381 | $115 |
Note: USAA is only available to military community members and their families.
Do I need gap insurance on a financed car?
Gap insurance kicks in when your financed vehicle is totaled. It will help cover the “gap” between what you owe on the totaled car and what your insurance company pays out after an accident—the actual cash value of the vehicle. If you are leasing a vehicle, your lender may require gap coverage.
“Gap insurance is highly advisable for financed vehicles. It covers the gap between the car’s current market value and the amount you owe on your loan,” McAlpin says. “In the event of a total loss, this coverage ensures you are not left responsible for paying off a car that no longer exists.”
Car insurance pays out the actual cash value of the vehicle, regardless of what you owe on your loan. If you total a reasonably new car, there is a real possibility you will owe more on your car loan than your insurer will pay for the vehicle.
This is because new cars lose a lot of value once they leave the dealer lot. Gap insurance will pay the difference, so you don’t have to pay off your car loan out of pocket.
The gap insurance connection to vehicle financing
Gap insurance is often tied to financing because it protects against depreciation. If your financed car is totaled or stolen, your insurer pays the actual cash value — but you might still owe more on the loan than the car is worth. That difference is the “gap.”
- When lenders require it: Many leasing companies and some lenders mandate gap coverage to protect their investment.
- When it makes sense for you: If you made a small down payment, chose a long loan term, or bought a vehicle that depreciates quickly, gap insurance can save you thousands.
Without gap insurance, you’d be responsible for covering that shortfall out of pocket.
Example: How gap coverage worksHere’s a quick example of how gap coverage may be a good choice. If you borrow $25,000 to finance your vehicle and total it shortly afterward, your full coverage insurance will pay your vehicle’s actual cash value, which is almost always less than what you owe.
In this example, it pays out a depreciated value of $22,000, which leaves $3,000 that you will have to cover. Gap insurance will cover the $3,000 difference. You can drop gap coverage once your vehicle is a few years old and the value and loan amount are more in sync.
Do you need full coverage after you’ve paid off your car?
Once you have paid off your vehicle, you are no longer under any obligation to carry full coverage car insurance.
However, before you call your insurer to drop collision and comprehensive coverage, remember that you will be responsible for all costs to repair or replace your vehicle if it is damaged in a collision, stolen, destroyed by a fire, hit by a deer, or flooded.
Unless you can easily afford to purchase a new vehicle if yours is destroyed, you should carry full coverage insurance to protect your vehicle and your finances.
Once your vehicle is old enough that you would replace it instead of repairing it after an accident, you should consider dropping full coverage and carrying liability only.
When can you drop full coverage?
You’re only required to carry full coverage while your car is financed or leased. Once your loan is paid off, you can legally drop down to liability-only insurance. But before you do, ask yourself:
- What’s my car worth? If your car is only worth a few thousand dollars, paying for collision and comprehensive might not be worth it.
- Could I afford to replace or repair my car? If not, keeping full coverage provides financial protection.
- How much am I paying for coverage vs. the potential payout? If the cost of full coverage over a year or two exceeds your car’s value, it may be time to scale back.
Rule of thumb: Drop full coverage only when your car’s value is low enough that paying for extra protection doesn’t make financial sense.
Frequently Asked Questions: Full coverage for a financed car
Why does a financed vehicle require full coverage?
Your lender owns your vehicle until you have paid off your loan. To protect their investment, they want to ensure the car will be replaced or repaired if it is involved in an accident.
What happens if I cancel full coverage while I still have a loan?
Your lender will be notified and may force-place insurance (at your expense), which is usually much more expensive.
When can I drop full coverage?
Once you’ve paid off your loan, you can legally switch to liability-only. But consider your car’s value and whether you could afford repairs or replacement before deciding.
Can I choose my deductible for full coverage on a financed car?
Yes, but your lender may set limits. Higher deductibles lower your premium, but you’ll pay more out of pocket if you file a claim.
Does full coverage mean I’m covered for everything?
No. It doesn’t cover mechanical breakdowns, regular maintenance, or items stolen from inside your car.
Do I need full coverage on a financed car if the car is used?
Yes. Regardless of whether the car is new or used, your financing company will require that you carry full coverage on the vehicle. If the car is destroyed or damaged in an accident or natural disaster, your lender will want it repaired or replaced to protect their investment.
Do banks have different rules on minimum full coverage for a financed car?
In most cases, the answer is no. Banks, manufacturer lenders, credit unions and other lending institutions require full coverage on a vehicle they are financing. They own the vehicle until you make the last payment, so they want it protected from disaster.
Is full coverage required by law?
No. State laws only require liability insurance. Full coverage is required by lenders, not by states.
Final thoughts: Auto insurance for a financed car
If you have financed or leased your vehicle, your lender will require that you carry full coverage. Technically, your financing company owns the car until you have paid it off, so they want to be sure it will be repaired or replaced if it is damaged or destroyed in an accident or other incident.
While full coverage is more expensive than a liability-only policy, shopping your coverage regularly will help you find the best full coverage policy at the best price.
Resources & Methodology
Methodology
CarInsurance.com commissioned Quadrant Information Services to get car insurance rates. The rates are based on the sample profiles of 40-year-old male and female drivers carrying full coverage policies with limits of 100/300/100 and $500 collision and comprehensive deductibles. Read the detailed methodology for more information.
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