How much car insurance coverage do I need if there is a lien on my car?

If there’s an auto lien on your vehicle, there’s a good chance you’ll have to purchase what’s commonly referred to as full coverage insurance. Of course, this is in addition to your state’s minimum liability auto insurance requirements.

Full Coverage Insurance Explained

Although it’s not a specific type of insurance, people still use the term “full coverage insurance” to describe a car insurance policy that provides more coverage than basic liability insurance.

Typically, a full coverage policy provides:

  • Collision Coverage: This covers your vehicle’s repair costs if you’re involved in a collision.
  • Comprehensive Coverage: This covers repair costs if your vehicle suffers damages from something other than a collision, such as weather, vandalism, or a collision with objects that aren’t other vehicles.

Why So Much Auto Insurance?

If you purchased your vehicle with the help of an auto loan, that means there’s a lien on your vehicle, and you won’t actually own the vehicle until you pay off the auto loan and your lender issues a lien release and transfers the title to your name.

Until that happens, your lienholder (usually a bank or some other financial institution) owns the vehicle, and your lienholder requires all this extra coverage to protect its investment.

Be sure to discuss exact auto insurance requirements with both your lienholder and your auto insurance provider.

Purchasing Car Insurance After the Lien Release

Once you pay off your loan and there’s no longer an auto lien on your vehicle (i.e., once you’re the true owner), you can:

  • Drop the full coverage insurance, as long as doing so makes more financial sense for your situation. Such situations include when your vehicle is no longer new or valuable or you have a savings account that can handle the costs collision and comprehensive coverage handle.
  • Keep the collision and comprehensive coverage because your vehicle is still fairly new and valuable or you don’t have a substantial savings account to cover repair or replacement costs.
Regardless of what you decide to do, this is a great point to take a closer look at the auto insurance premiums you’re paying. You might be able to save some money if you talk with your insurance agent about discounts you might be eligible for, and shop around online for competitive car insurance rates from other companies.

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