If you look at your vehicle's loan contract, you'll see a full coverage insurance policy is required until your loan is paid off. The policy must remain in effect because it protects the bank from losing the car it partially owns. It's important to understand how long you need full insurance coverage on a financed vehicle, the benefits of having that coverage in place and about the financial repercussions of not keeping the policy enforced.
Policy Details
A full coverage insurance policy protects your vehicle in the event of an accident, regardless of who was at fault. A state-minimum liability policy covers damages to other people or property. While a full coverage policy is the most expensive, it provides protection to the bank that has financial interest in the car and to you as well. Should you crash your car, the bank knows it will receive its loan payoff or be repaired to return to the road for you to continue driving it, a benefit to both you and the bank.
Premature Policy Cancellation
Your insurance company reports your coverage information to your lien holder, so if you drop the coverage or let it lapse; you're likely to face financial consequence from your lender. Many banks add a full coverage policy to the vehicle if its borrower fails to do so. However, this is not an easy way out; the policy put in force by the bank is usually triple the cost (or more) than a personally purchased policy. Your next car payment will rise to reflect the policy cost.
Lowering Costs
If you want cheaper insurance, shop around. With the number of insurance providers available nationwide, you may find you can lower your insurance cost substantially. You can also make changes to your existing policy, such as raising your deductible, lowering bodily injury and property damage limits (if higher than state or bank minimums) or dropping extra coverage, such as rental car coverage or windshield replacement. Talk to your bank to make sure you don't decrease coverage beneath the bank's required amount. Your insurance provider can help you decide which policy extras you can drop.
Warning
If you do increase your deductible or lower limits, you put yourself in financial risk should a serious accident occur. If your policy does not cover the damages to another person or even property, you are liable for any payments due. You can be sued in court. Additionally, losing rental car or windshield coverage can leave you having to pay in the event of an accident. Accidents are never planned; keeping an adequate policy in place benefits you financially.
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