If you own your vehicle outright, you can insure it as you please. Otherwise, financing and leasing insurance requirements are very similar. During the term of your contract, full-coverage insurance, or a collision policy, is required. Lenders can also require deductible limitations and higher limits than those required by your state.
Purpose of Collision Coverage
A collision policy includes liability and comprehensive coverage. The liability portion pays for damages you cause to other people or property. Comprehensive coverage includes repairs to your car or its market value if your vehicle is damaged from matters such as theft, fire, vandalism, animal impact or weather-related damages. Collision coverage increases coverage to include repair cost or market value replacement for your vehicle no matter who is at fault in an accident or why. For example, if you crash your car into a road sign, collision coverage will pay to repair it.
Limits and Deductibles
You can increase coverage for the liability portion of your collision policy, and you must also choose a deductible. States require only minimum limits for bodily injury coverage, which pays for damages you cause to other people in an at-fault accident, and property damage coverage, which pays for property you damage in an at-fault accident. Deductible options range by insurance provider. A deductible is the amount of money you will pay out of pocket for repairs or market value payment when at-fault. Most insurance companies offer a 0 to $1,000 deductible option.
Leasing and Lending Requirements
Whether financing or leasing, expect to increase your bodily injury and property damage limits. While your state may require very little coverage, most lenders require more, which increases the cost of your insurance premium. Your policy cost may increase, but you'll have adequate coverage in a serious accident. Lenders and leasing companies also require lower deductibles; many set the limit at $500, which also increases the cost of your policy. Leasing banks often require gap insurance, which may be a requirement of your auto loan provider as well. Gap insurance covers the gap between your insurance company's market-value payoff and the bank's loss of value if your vehicle is declared a loss.
Full Ownership
If you purchase your new car in cash, you can insure it with your state's liability policy only. Most states require this coverage for a vehicle to remain registered and on the road. Although liability coverage is your cheapest option, it offers no coverage for your vehicle. Unless you can easily replace your new car if it became a loss, add collision coverage to your policy and consider increasing your limits as well. This protects your purchase and finances in the event of a loss or a serious accident. Otherwise, you'll find yourself without a car or can face a lawsuit if the injuries and damages you caused are more than your state's limits.
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