Why Banks Often Require Comprehensive Car Insurance Coverage
Comprehensive car insurance coverage provides a lot of protection for vehicles. If your car is damaged in an accident that you cause, comprehensive coverage will often cover many of the costs. Comprehensive coverage also covers repairs that are necessary due to auto theft, natural disasters, and other occurrences, depending of course on the policy, the vehicle, and the driver's choices. While this makes it an obvious buy for many drivers, some opt to skip comprehensive car insurance coverage, but any person buying a vehicle through a car loan may find themselves forced to buy comprehensive coverage due to bank policies.
Banks require comprehensive car insurance coverage because they have an interest in keeping your car insured; they need to get their money for the loan that they issued to the car's driver. If the driver is involved in a major accident without comprehensive coverage, he or she may not have the funds to pay the bank back for the loan, especially when the other costs of an accident are tallied up. In this situation, the bank would stand to lose quite a bit of money. The same could be true if the vehicle is stolen, or in a number of other circumstances. From the bank's perspective, it's important to keep the vehicle insured, because they need the loan to be paid off regardless of what happens during the period of the loan.
A bank may require a different amount of comprehensive car insurance coverage depending on several factors, but the amount of coverage that they require will always be listed clearly in the car loan contract. Usually, comprehensive coverage equal or great than the value of the vehicle is required, regardless of the size of the loan. The bank will ask the driver for proof that the vehicle has an appropriate amount of insurance, and the driver's insurance company will fax over certain policy documents as proof. If the driver cancels his or her insurance policy, the provider will inform the bank that coverage has ended. The driver will then need to buy a new car insurance policy, complete with comprehensive coverage, or the bank may exercise an option to buy additional coverage for the vehicle — they'll also charge the driver for this coverage.
If you're buying a vehicle through a car loan, be sure to buy an appropriate amount of comprehensive coverage to prevent penalties. To cut the cost of comprehensive coverage, park your car in a safe spot, install an anti-theft device, and shop around before buying comprehensive coverage. This will help to keep your bank satisfied while minimizing your costs.
