What kind of coverage do you need for a financed car?

Buying a car is a big step toward your dreams — and for most of us, it means taking out a loan rather than paying cash upfront. If you’re getting ready to drive off the lot in a new or new-to-you vehicle, you may be wondering: What kind of insurance do I need for a financed car?

Let’s dig into what’s required, what’s recommended, and how you can protect your dream ride.

Financed car insurance requirements

When you finance a car, your lender wants to make sure their investment is protected — and so should you. That’s why most lenders require you to carry both collision and comprehensive insurance. These coverages help pay for repairs or replacement if your car is damaged, whether it’s from an accident, theft, vandalism, or even a run-in with a deer.

And don’t forget: Every state has its own minimum requirements for liability coverage, which helps pay for bodily injury and damage you may cause to others.

Let’s take a closer look at these key coverages for financed cars.

Collision insurance

This protection helps pay to repair or replace your car if it’s damaged in an accident, no matter who’s at fault. Whether you’re rear-ended, side-swiped, or involved in a fender bender, collision coverage helps keep your finances on track.

Comprehensive insurance

Comprehensive coverage helps protect against damage caused by events other than collisions, including hail, theft, vandalism, or hitting an animal. It’s like a safety net for some of life’s unexpected moments.

Bodily injury liability coverage

This coverage helps pay for injuries to you, your passengers, the driver and passengers of the other vehicle, and even pedestrians if you’re at fault in an accident. Bodily injury coverage can also help with legal fees if you’re sued. Many states require this coverage, but their minimums may not be enough. Talk to your American Family Insurance agent about the right amount of coverage for you.

Underinsured and uninsured motorist coverage

Although not always required for financed cars, this coverage is highly recommended for a broader range of protection on the road. Underinsured motorist coverage can help if the other driver doesn’t have enough insurance to cover your costs after an accident, while uninsured motorist coverage can help if the other driver has no insurance at all.

Do I need gap insurance on a financed car?

Lease or loan gap insurance is a useful coverage that can help if your car is totaled but you still owe money on your loan. Let’s say you’re involved in a covered accident and your vehicle is declared a total loss. The actual cash value of the vehicle is $14,000 — which is what your insurance company will typically pay — but you still owe $17,000 on your loan. Gap coverage can assist with that $3,000 difference so you’re not left paying out of pocket for a car you no longer have.

Dealerships may offer lease or loan gap insurance during the purchase process, but it’s often more affordable through your insurance provider. Ask your American Family Insurance agent about adding gap coverage to your auto insurance policy.

Stay prepared on the road

Remember to carry your proof of insurance whenever you drive. Some states require it, and it’s always good to have it on hand.

With the MyAmFam app, you can easily access your insurance card, pay bills, and request emergency roadside assistance — all from your smartphone.

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This article is for informational purposes only and based on information that is widely available. This information does not, and is not intended to, constitute legal or financial advice. You should contact a professional for advice specific to your situation.

This information represents only a brief description of coverages, is not part of your policy, and is not a promise or guarantee of coverage. If there is any conflict between this information and your policy, the provisions of the policy will prevail. Insurance policy terms and conditions may apply. Exclusions may apply to policies, endorsements, or riders. Coverage may vary by state and may be subject to change. Some products are not available in every state. Please read your policy and contact your agent for assistance.