How much car insurance am I required to have if I still have a car loan?

Full coverage when financing a car is required by most lenders. The average rates for full coverage car insurance in the US are $79.58/month, but the price will vary from driver to driver.

Free Car Insurance Comparison

secured lock Secured with SHA-256 Encryption

A former insurance producer, Laura understands that education is key when it comes to buying insurance. She has happily dedicated many hours to helping her clients understand how the insurance marketplace works so they can find the best car, home, and life insurance products for their needs.

Full Bio →

Written by

Joel Ohman is the CEO of a private equity backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Jo...

Full Bio →

Reviewed by Joel Ohman
Founder & CFP® Joel Ohman

UPDATED: May 4, 2022

Advertiser Disclosure

It’s all about you. We want to help you make the right coverage choices.

Advertiser Disclosure: We strive to help you make confident car insurance decisions. Comparison shopping should be easy. We are not affiliated with any one car insurance company and cannot guarantee quotes from any single company.

Our partnerships don’t influence our content. Our opinions are our own. To compare quotes from top car companies please enter your ZIP code above to use the free quote tool. The more quotes you compare, the more chances to save.

Editorial Guidelines: We are a free online resource for anyone interested in learning more about auto insurance. Our goal is to be an objective, third-party resource for everything auto insurance related. We update our site regularly, and all content is reviewed by auto insurance experts.

Here's what you need to know...

  • Your lender will make sure you know how much insurance you need to carry while you’re making payments
  • Lenders require liability, collision, and comprehensive coverages
  • When your loan is paid you can decide what level of coverage to keep for your vehicle

State laws dictate the minimum amount of car insurance for liability that you must carry on your vehicle and the remaining insurance coverage that is available is usually optional. This means that the price you pay is going to be different depending on where you’re located.

If you have an auto loan, you are typically required to carry additional insurance by your creditor. The insurance you are required to have if you have an auto loan will be for:

  • Liability coverage
  • Comprehensive coverage
  • Collision coverage

While you will be instructed by the state and your lender as to how much coverage to purchase, the deductible will be your choice, which can help keep your premium lower.

Once your car is paid in full, it will be at your discretion to continue the collision and comprehensive car insurance coverage or to cancel it and maintain only liability. Most often, the age and condition of your vehicle will dictate your decision.

Getting a handle on how much insurance coverage you need can help you not only keep your monthly payment at a place where it’s affordable, but it can also make you a more confident vehicle owner. Having the right type of coverage on your vehicle ensures that it’s protected against any dangers while on the road. This can lead to feeling safer while driving.

If you need to compare insurance companies, we offer a free online comparison tool that can help you.

Liability Car Insurance

Liability insurance is required by all states, although the minimum amounts of coverage mandated vary from state to state. Liability coverage offers you financial protection in the event you are at fault in an accident.

Having liability means that your insurance provider will pay for the bodily injury, death, and/or property damage that is suffered by the victim(s) of the opposing car.

Liability coverage is also extended to victims who are pedestrians at the time of the accident.

For example, if you run your car into someone waiting at a bus stop, you are liable for the damages caused to that person and your liability insurance will cover the expenses up to the amount of coverage purchased.

Three numbers are used to convey liability coverage amounts, such as 20/40/30. This indicates the maximum amount of car insurance purchased for liability incidents. The numbers are in the thousands so the 20 above stands for $20,000 in coverage.

  • The first number – This represents costs of bodily injury or death for a single victim
  • The second number – This represents the total bodily injury or death compensation for multiple victims combined
  • The third number – This number represents property damage for all victims involved

Usually, the property damage compensation is used to pay for the damages incurred to the victim’s car, but it can also include other property such as a bicycle if you hit a cyclist or a fence or house if you damage those.

Liability does not offer you any compensation for your own bodily injury or property damage that may occur in an accident for which you are at fault.

In order to receive medical coverage for your own injuries, you need to purchase optional medical insurance from your car insurance agent or be covered by private or group health insurance.

Collision car insurance will reimburse you for damages to your vehicle, and this is required by all lenders who finance your car since they are the title holder of your car until the loan is paid in full.

Free Car Insurance Comparison

Enter your ZIP code below to view companies that have cheap car insurance rates.

secured lock Secured with SHA-256 Encryption

Collision Car Insurance

Collision car insurance is optional for many car owners, but if you have an auto loan you are most likely required to carry this policy type for your car. It all depends on the minimum requirements based off what type of vehicle you have, and where you live.

This is because, if you are at fault for an accident and your car is damaged, you need to be able to prove financial responsibility to pay for necessary repairs to the car or to cover a total loss if one is declared.

GAP insurance can be purchased, optionally, to help cover the financial loss between a total loss claim and the amount owed on your depreciating car.

If you are struck by an uninsured motorist or underinsured motorist and you do not have uninsured or underinsured motorist insurance, collision insurance may be able to help cover some of the costs associated with the damages to your car.

Provided you have collision insurance, your car will be covered regardless of who is at fault for the accident. Collision coverage will provide you with financial protection for damages to your car incurred through an incident with another car, an object, road surface, or even a person.

Lenders require collision insurance for the duration of auto loans so that the cost of your car’s damages can be covered to the extent of the amount of coverage you purchased.

However, since collision only addresses damage to your car from collisions, lenders also require comprehensive insurance for a car loan.

Comprehensive Car Insurance

Comprehensive car insurance is the “everything else” insurance that addresses damages to your vehicle that are not covered by collision insurance.

Beyond piece of mind when obtaining coverage for your new car loan, comprehensive insurance will cover the costs of repairs to your car based on how much insurance you bought. This is true whether your car is damaged by:

  • Hail
  • Vandalism
  • Fire
  • Theft

Car insurance for comprehensive coverage can be purchased separately or bundled in a package. If you have an auto loan, you will most likely purchase it as a package deal.

If you are not required to carry both collision and comprehensive, you can just buy the insurance you need. However, depending on the age and value of your car, you may decide to keep both collision and comprehensive even after your auto loan is paid.

The deductible for collision and comprehensive is separate from that of liability, so you can increase the deductible on those options to lower your premiums.

Deductibles range from $250–1,000, although $500 is one of the most commonly chosen rates. To decide on the deductible that is right for your policy, determine how much money you can safely pay out of pocket in the event you need to submit a claim.

If you can afford to pay $500 up front, that option will cost you less money in premiums than a $250 deductible.

However, if you can only afford $250 for a lump sum deductible payment, then you may need to pay a little more for your premium and have that cost spread out over installment payments for your insurance.

To budget for your insurance deductible, set up an interest-bearing savings account just for your car insurance, and allocate a certain amount of dollars from each paycheck to go to this account.

As your account grows, you can feel more confident changing your insurance policy to reflect the new deductible.

If you never need to use the money, you will have a nice little savings account growing, but if you do need to submit a claim, you will have the money you need to pay your deductible and get your car repaired.

Choosing the Right Car Insurance

Regardless of whether you have an auto loan or not, you will always need to carry liability coverage on your car. The minimum amount of coverage is set by state law, but the more you can afford to buy the safer your assets will be.

When it comes to collision and comprehensive, you have more flexibility as to the amount of coverage you get.

You will be required by your lender to carry both of these optional policies if you have an auto loan, but even if your car is owned outright you may want to weigh the pros and cons of having a multitude of coverage types.

You can always reduce your insurance rates by raising your deductibles while still maintaining full coverage for your vehicle.

All other car insurance policies are optional and will depend on your individual needs and what you may be able to afford. With your current loan, you may decide that having all of the above mentioned types of coverage would protect you the best.

Your lender can dictate what types of car insurance you need when you have an auto loan, but you have the freedom to choose your insurance agent.

To shop for the best rates for car insurance from top car insurance companies now, enter your zip code below and start comparing quotes for free.

Free Car Insurance Comparison

Enter your ZIP code below to view companies that have cheap car insurance rates.

secured lock Secured with SHA-256 Encryption