Question

Can you have liability insurance on a financed car?  

Yes, you can have liability insurance on a financed car.

While you can have liability insurance, you cannot choose to have liability-only insurance, especially for newer cars.   

Why can’t I have liability-only insurance for a financed car?  

The liability-only insurance pays for the damage caused by your car. It doesn’t cover the damage to your car in an at-fault or no-fault accident. Also, even if the car gets damaged, totaled, or stolen, the financier expects repayment. As the asset in an auto loan is the car itself, the financier needs surety of repayment. Only full coverage insurance with a sufficient limit can make this repayment. Hence, the bank makes it mandatory to have full coverage insurance instead of liability-only.  

Can you pause insurance on a financed car?  

Generally, you cannot pause the insurance on a financed car. Most auto loan agreements insist on continuing full coverage of insurance throughout the loan tenure.   

What will happen if you get liability-only insurance on a financed car?  

While purchasing insurance for a financed car, you have to disclose the financier’s name to the insurer. Mostly, the insurer informs the financier regarding your auto insurance; otherwise, you will have to submit the proof of insurance to the insurance provider.

When the financier finds you don’t have sufficient coverage for the car, they force-place insurance on their own. A force-placed insurance only covers the lender’s interest. Also, it costs 2-4 times more than what you can get on your own. The cost of insurance will be added to the loan balance.