Can You Get Liability Insurance on a Financed Car?

Yes, you can get liability insurance on a financed car, but it may not meet a lender’s requirements for full coverage. Liability insurance is only the minimum that New Mexico law requires, though any lender will want more due to their vested interests. Parnall Law, at Albuquerque, NM, (505) 268-6500, is here to help you understand this and more, and provide assistance with any legal issues that arise.

Can You Get Liability Insurance on a Financed Car?

Yes, you can get liability insurance on a financed car, but it usually doesn’t provide the comprehensive protection that lenders require. Liability insurance will meet the minimum legal requirements for drivers in New Mexico and cover damages or injuries you cause to another driver, passenger, or property. This minimum coverage does not provide financial protection for the car itself, which lenders usually want when approving loans.

Following are a few key things to consider regarding liability insurance for financed vehicles:

• Meets Legal Requirements: Liability insurance is legally required to drive in the state. The minimum state coverage is 25/50/10, which includes $25,000 for bodily injury per person, $50,000 per accident, and $10,000 for property damage. This coverage will ensure you meet legal standards but does not account for damage to your own vehicle.
• Lender Requirements: Most require full coverage, meaning carrying both collision and comprehensive insurance. Collision insurance covers your car in case of an accident, while comprehensive covers it against theft, vandalism, and weather-related damages. This ensures the financial interest of the lender in the vehicle is covered until the loan is fully paid.
• Limitations of Liability Insurance: While much more affordable than full coverage, liability insurance leaves you open to financial devastation if you are involved in an accident that destroys or severely damages your vehicle. You would have to pay for totaling or major repairs out of pocket if your car were to be severely damaged, all while still making loan payments on the vehicle.
• Expert Verification: The Insurance Information Institute concurs that liability insurance only aims to satisfy the legal requirements of most states and is rarely sufficient in the case of most financial contracts.

Knowing this difference is vital to the right decision-making regarding your needs about insurance, more so when your car is financed.

Do I Need Full Coverage for My Financed Car?

Yes, most lenders require comprehensive insurance on financed vehicles to adequately cover their investment until a loan is fully paid for. Full coverage generally covers three major components: liability, collision, and comprehensive. Each of these plays a clear-cut role in providing intense protection to both the lender and the driver.

• Liability Insurance: This covers the damages or injuries you cause others in an accident; though by law, this does not cover your car.
• Collision Insurance: This pays for the damage to your vehicle due to collision with another vehicle or any object, irrespective of whose fault it is; this is very important in covering the repair costs from collisions.
• Comprehensive Insurance: Pays for damages unrelated to collision, such as theft, vandalism, and weather conditions. It covers those sudden situations that may render your car incapable of further use.

Without full coverage, you risk violating your loan or lease terms. Most lenders require these policies as part of the loan agreement, as a way to protect their financial interest in the vehicle. According to Car and Driver, the requirements for insurance on financed vehicles are usually above the state-mandated minimums; this is important to ensure both parties are highly protected. Without full coverage, you might incur financial penalties or even have your vehicle repossessed.

What If I Crash a Car and Only Have Liability Insurance?

You could face significant financial liabilities should you crash a financed car and only carry liability insurance. Liability only pays for the damage or bodily injuries of others, not repairs for your car. This open coverage will leave you stuck paying any repair or replacement of a vehicle out-of-pocket yet still owing money on that car in loan debt.

In New Mexico, accidents involving uninsured damages can lead to complicated legal scenarios. Consulting with an experienced attorney may help clarify your options and protect your rights. The Insurance Information Institute highlights the importance of matching your insurance to your financial exposure to avoid these risks.

Tips to Be Covered When Driving in New Mexico

To make sure you’re fully protected while driving in New Mexico, consider the following tips:

• Know New Mexico’s Insurance Laws: The minimum liability required by the state is 25/50/10, which means $25,000 per person for bodily injury, $50,000 per accident, and $10,000 for property damages. However, this may not be adequate to pay all the costs of a serious accident. Financed vehicles often require higher levels of protection.
• Work with Your Lender: Most lenders, if financing your car, will require full coverage, including collision and comprehensive insurance. They may also recommend or require gap insurance, which covers the difference between your vehicle’s depreciated value and the outstanding balance on your loan. This is especially useful in those instances when your car is either stolen or totaled.
• Coverage Beyond the State’s Liability Minimum: Add collision coverage to take care of incident-related repairs and comprehensive coverage for non-accident events like theft, weather damage, or vandalism. These policies provide a safety net for unexpected incidents that liability insurance alone does not address.
• Seek Professional Advice: Navigating insurance policies can be complex: The consulting of a legal or insurance professional guarantees that you will stay within the bounds of the state laws and lender’s requirements, as well as provide for your personal risk tolerance and financial situation. Let professionals help tailor a policy that protects both you and your assets.

By following these tips, you can minimize financial risk, stay within the bounds of the law, and have more confidence on the road in New Mexico.

Need Help? Contact Parnall Law Today

Whether you have questions regarding the requirements for car insurance or need legal intervention after your car accident, Parnall Law is here to help. Call us today at (505) 268-6500 or visit our office in Albuquerque, New Mexico, at 2155 Louisiana Blvd NE #8000 to let us help you sort out your options.