If you finance your car purchase, your lender will inform you about the types of insurance you need. Since the bank owns the vehicle along with you, it wants to ensure that its investment is properly insured. You can save on insurance by opting for higher deductibles, but that means more out-of-pocket expenses if you're involved in an accident.
Almost every lender will make you get automobile insurance before giving you a loan. Your lender informs you exactly what type of coverage is necessary for you to secure a loan, as well as the minimum coverage amounts. If you can't meet the lender's requirements, there's almost no chance you'll get the car you want.
Liability coverage is required in most states. Depending on your driving record, you might have to purchase certain levels of coverage beyond the minimum amount. If you're at fault in an accident, liability coverage pays for the damage to another driver's vehicle or property, as well as medical expenses for those involved in the accident.
Comprehensive and collision insurance are often sold as a package. Collision insurance pays for the costs of vehicle repair if you're in an accident. Comprehensive insurance pays for damage caused by other means such as vandalism, hail storms and natural disasters. You'll have to ask your lending institution about deductible limits required for your loan. While a higher deductible saves you money on insurance premiums, it's possible that the loan terms won't permit as high a deductible as you'd like.
If you keep the car after making all of your payments, you have more control over insurance decisions. You'll still have to purchase liability coverage, but it's up to you whether or not you buy comprehensive and collision insurance. If your car has retained most of its value, it's a smart idea to keep up with those policies. As your car ages and loses value, you might consider dropping the comprehensive and collision insurance.
A graduate of New York University, Jane Meggitt's work has appeared in dozens of publications, including Sapling, Zack's, Financial Advisor, nj.com, LegalZoom and The Nest.