Car Insurance for Financed Cars: What You Need to Know

Car financing refers to obtaining a loan or credit to buy a car. Instead of paying the entire purchase price in cash, a loan can be taken to cover the vehicle cost, which is then repaid in installments over time with interest.

Having a financed car comes with a lot of responsibility. The most important one is the safety of the car from any accident or theft. But what if something unfortunate happens while you are still paying off the loan for your financed car? 

Well, in such cases, having car insurance for financed cars helps you cover the costs of unfortunate damages. 

In this blog, we’ll understand why it is important to have insurance for financed cars, what type of insurance you need for your car, how you can get lower premium rates and much more! 

Why Do Financed Cars Require Insurance?

Having a financed car technically means that the car still belongs to the lender until you pay off the loan. In order to protect the investment, it’s essential to buy comprehensive coverage insurance to cover any damage from accidents, theft, vandalism, or even natural disasters.

In case you don’t have insurance for your financed car and something unfortunate happens to it, the lender will be at great risk of investment loss. Moreover, you could also get into trouble paying all the hefty expenses of car repair. 

Thus, by purchasing the right insurance for your financed car, you're not only safeguarding the investments of the lender but also making sure you are covered for any unexpected accidents or damage.

What Insurance Do You Need for a Financed Car?

Generally, car financers require you to get Comprehensive Car Insurance. This policy is to safeguard both the borrower and the lender against possible loss or damage. Comprehensive coverage provides all-around protection for your financed car against accidents, theft, fire, and natural disasters, ensuring your safety in every situation. Moreover, it also includes third-party liabilities in the event of an accident.

In India, insurance on motor vehicles is not just a choice; it's a legal requirement. As per the Motor Vehicles Act, you must have at least third-party car insurance. This ensures that you're not just protected but also compliant with the law. 

All in all, you can opt for basic insurance; needless to say, purchasing comprehensive coverage protects you financially for a wide number of situations. Thus, it is indeed a smart move to protect both the car and your finances.

Factors Influencing Insurance Premiums for Financed Cars

So, now, if you have made up your mind to insure your financed car, make sure you are aware of the insurance premium affecting factors. Here’s a breakdown: 

Car’s Market Value (IDV):

Insured Declared Value or IDV typically means the current market value of your car. Notably, the higher the IDV, the higher the premium you’ll have to pay for your financed car’s insurance. This is simply because the insurer will have to pay more in case a claim is made. 

Your Driving Record:

If you’ve got a clean record—no accidents or tickets—you’re in luck! Having a clean driving record leads to lower premiums. 

Car Make & Model:

If you own a luxury or a high-maintenance car, you are more likely to charge higher premiums. This is because luxury cars generally require high repair costs. 

Safety Features:

Often, insurers offer discounts on premiums if your car is equipped with safety measures such as airbags and anti-lock brakes. 

Coverage Level:

Well, this one goes without saying. The higher the coverage you demand, the higher the premium you’ll be charged. Moreover, full coverage with theft and disaster protection is usually pricier than basic insurance coverage. 

Claims History:

If you have a history of frequent claims, you may have to pay higher premiums as your insurers are at a higher risk of the coverage being claimed. On the other hand, if you haven’t made any claim in years, then your insurer might offer you a no-claim bonus. 

Tips for Lowering Insurance Costs on Financed Cars

It is important to follow certain measures if you want to save up on the insurance cost for your financed car. Here are some practical tips to help you lower your insurance premiums:

Get Insurance Online From Insurance Aggregators

You can grab discounts by purchasing insurance online from third-party aggregators like InsuranceDekho. The best part is that instead of visiting multiple insurance company websites or calling agents, you can see all your options side by side in one place.

Increase Your Deductible

Simply put, the higher the deductible you have on your insurance, the lower the premium you'll have to pay. However, it also leads to paying more out-of-pocket in case you make a claim. 

Improve Your Driving Record

As said earlier, a good driving record leads to lower premiums. Hence, make sure you keep a clean driving record free of any accidents or traffic tickets. 

Consider Bundling Policies

In case you already have multiple insurance policies such as home, auto, life, etc., you can bundle up these insurances and get a discount. 

Take Advantage of Safety Discounts

If your car is equipped with safety features such as airbags or anti-theft locks, make sure you ask the insurer about potential discount offers for safety. 

Shop Around for the Best Rates

Do not make the mistake of investing in the first insurance policy that you see. It is important to research and compare the best insurance providers to find the right rate. 

Maintain Good Credit

In some regions, your credit history can be a factor in determining insurance rates. Maintaining a good credit score can help secure lower premiums.

How to Handle Claims on Financed Cars

The process of claiming insurance coverage on a financed car may seem like a complex task, but it doesn’t have to be! Here is what you have to do —

Report the Incident:

The first thing that you have to do is inform the car insurance company and let them know what happened within the right time frame. Make sure you tell them every big and small detail of the incident. 

File Your Claim:

In order to process the claim, the insurer will ask you to submit a few documents, such as the police report of the incident, your car's registration, proof of ownership, etc.

Cooperate with Inspections:

To finalise the claim, the insurer will need to inspect your car. Make sure you provide complete cooperation with that. 

Check Your Coverage:

Take a look at your policy terms to check what’s covered and how much you’ll have to pay out of pocket (deductibles).

Once everything is sorted, you can get your car fixed or start looking for a replacement! Remember, ensure your lender is in the loop throughout the insurance claim process. 

Conclusion

Car insurance is essential if you have a financed car and want to ensure your lender, as well as you don’t face any financial loss. By choosing the right car insurance provider for your financed car, you can have great peace of mind knowing your finances are sorted in case of any misshapen. Make sure you thoroughly compare leading car insurers and consult an insurance advisor to understand the ins and outs! 

Frequently Asked Questions

Q. How does a good driving history affect my car insurance premium?

Ans. If you’ve got a clean record with no accidents or tickets, you’re in luck! Having a clean driving record leads to lower premiums. 

Q. What documents do I have to submit while claiming my car insurance? 

Ans. The insurer will ask you to submit a few documents, such as the police report of the incident, your car's registration, proof of ownership, etc.

Q. My car has safety features such as airbags and anti-theft locks, how does it help with my car insurance premium? 

Ans. Often, insurers offer discounts on premiums if your car is equipped with safety measures such as airbags and anti-theft locks. 

Q. What are some of the leading car insurance providers in India? 

Ans. Here are some popular car insurance providers in India –

• ICICI Lombard

• Bajaj Allianz

• Tata AIG

• HDFC ERGO

• Acko

• SBI General Insurance

Q. What is no claim bonus? 

Ans. If you have car insurance and haven’t made any claim after years of safe driving, you can avail of a no-claim bonus. This bonus is given as a reward for your safe driving.