When you finance a vehicle with a loan,
you are usually required to buy insurance
coverages to protect the lender.
Auto Insurance
Most states require you to carry a minimum
amount of liability coverage and many states
require uninsured motorists' coverage. Most
lenders do not require liability insurance but
do require comprehensive and collision coverages
to repair or replace the vehicle if it is
damaged or stolen. Ask your lender if they
require specific deductibles. Make sure all
coverages are in effect before you take
possession of the vehicle.
Optional Coverages
Credit Life Or Credit Disability
Insurance. These policies continue your loan
payments if you become disabled and will pay the
loan in full should you die while your financing
is in effect. Coverage may be optional but can
be essential if your financial assets are
limited. Consider a term life policy as a cost
effective option.
GAP Insurance. This insurance covers
the difference between a vehicle's stated
value in a finance contract and the
amount an insurer would pay if the vehicle
is damaged beyond repair or stolen before
the end of the finance period. You can
purchase GAP coverage from the dealer or
lender, which usually costs between $200 and
$600 for the term of your loan.
Debt-Forgiveness Coverage. Sometimes
called debt-elimination coverage, this
product offers the same (or similar)
benefits to the borrower as credit life
insurance. It eliminates the debt if the
borrower dies or it cancels or postpones the
monthly payment if the borrower becomes
disabled, unemployed or suffers some other
hardship. It is issued directly by the
lender not an insurance company.
Extended Warranties. These warranties
lengthen the period covered by a
manufacturer's warranty on the entire
vehicle or on individual parts and systems.
They do not have to be purchased through the
dealer. Because most regular full warranties
provide coverage for three to four years, or
36,000 to 50,000 miles, depending
on the manufacturer and the model, you may
not need an extended warranty.
However, you may want an extended warranty
on items that are not covered by the
original warranty or are only covered for
one year or less.
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Buying Your First Vehicle
Auto Insurance
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