Many people find themselves in a situation where they simply can’t afford to purchase a car outright. To afford a vehicle, people are often making the choice to finance their purchase. This leads to questions about how your insurance is affected. Do you need a special policy? The simple answer is yes, you will generally be required to carry above the required minimum amount of auto insurance if your vehicle is financed.
What You Need to Know About Insuring A Financed Vehicle
Let’s say you just purchased a brand new 2022 SUV. It’s got all the bells and whistles and the shiny exterior is what you’ve always dreamed of. Obviously, you’re going to want to make sure you have the proper car insurance coverage on this rather expensive new purchase. But if you’ve financed the car does the lending institution have certain insurance expectations?
The short answer is yes.
In most provinces throughout Canada, you are required by law to carry third-party liability, accident benefits and direct compensation for property damage insurance. The mandatory minimum is often not enough coverage to cover the costs of an accident and lawsuit, so most drivers carry more than the minimum. We recommend our clients carry $2,000,000 in protection. Most lenders require that policies have a minimum of $1,000,000 as they want to ensure their asset is protected.
Provincial and federal laws do not require drivers to carry any insurance that addresses damages to your vehicle, such as collision or comprehensive coverage. But this changes when a car is financed through a lender. If the car is damaged or written off in a crime or accident and you do not have adequate coverage the lender’s investment is not protected. Therefore most lenders require financed vehicles to have comprehensive and collision coverage with a minimum limit. Read the fine print and speak to your lending institution about the insurance expectations in order to get a clear picture regarding the insurance you will be required to carry. You should also talk to your broker who can help you out with navigating the different types of coverages and ensure you’re following the guidelines set by the lender and protecting your car.
Financed Vehicle in an Accident
If you are involved in a loss such as an accident remember that all claim payments are made payable to both the insured and the loss payee (the lender). This protects the amount owing on the loan. Listing the lender as a loss payee also entitles them to regular status notifications in regard to your policy; in this way, they can ensure that their collateral (your car) is being adequately protected.
Talk to your insurance broker if you’ve got any questions regarding navigating insuring a financed car and be sure to read the fine print of your lease or finance agreement to ensure that you’re meeting the expectations of the lender.