Although optional, every car owner knows that getting car loan insurance is wise. In most provinces throughout Canada, the law requires car owners to carry the following:
- third-party liability
- accident benefits
- compensation for property damage insurance
In most cases, car owners seek out the best possible car insurance rates, which sometimes means going for lower coverage. While minimum coverage can also be a nice option for paid-off cars, you’ll want to ensure full coverage for your financed car.
Full coverage insurance is unnecessary for some car owners or potential buyers, thinking they can easily save up for it. However, it’s worth noting that this is protection rather than a burden.
Car loan providers also require proof of full coverage before approving your application, as it protects their investment if the lender reneges on payment. Read further to obtain additional information, resources, and guidance on car insurance.
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What is Full Coverage Auto Insurance?
A car loan or credit insurance with full coverage is a type of financing to help you repay your loan with the agreed interest rate during a financial fallout. It protects you and your vehicle from catastrophic bills in case of the following:
- death
- serious illness
- car accident
- unemployment
According to CarInsurance.com, you must have at least liability insurance to drive in your state in Canada legally. However, this type of insurance only covers the damages you are accountable for with another driver.
On the other hand, a full coverage policy offers financial protection for your car on top of liability insurance. It also includes:
- Collision Insurance: This covers damage to your car regardless of who caused the accident.
- Comprehensive Insurance: This covers damage to your vehicle from falling trees, natural disasters, vandalism, and theft.
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Besides the insurance policies mentioned earlier, full coverage also helps you with:
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How to Sign Up for Car Loan Insurance
Some clients get auto loan insurance from the nearest car dealers. However, there are better sources than this. With over 100 insurance companies across Canada, you can compare multiple insurance providers to find the best rates before deciding.
You can also request quotes from:
- private insurers
- credit unions
- Canada’s Big Five banks
Once you’ve signed up, you’ll be required to pay a recurring premium when your loan payment is due.
| ✅Pro Tip:
Once your loan is approved, you can make a one-time payment that will typically come from your account. |
Types of Car Loan Insurance
Some car loan insurance policies may be all-inclusive, while others could have several exclusions. The most common types of car loan insurance comprise:
- Credit Disability Insurance: This insurance will pay off your loan if you’re injured in a severe accident or become critically ill and can no longer work.
- Credit Life Insurance: If you die, such financing will cover your loan to ensure your family is debt-free.
- Credit Unemployment Insurance: This helps you pay car loans if you lose your job as long as you meet specific eligibility requirements.
| ????Did You Know?
Canadian drivers pay an average of $1,300 to $1,800 in car insurance premiums annually. However, your pay may differ depending on factors like gender, location, type of car, etc. |
Factors that Affect Car Loan Insurance Rates
There is no fixed or stable cost of auto loan insurance, as it depends on personal details and your specific car loan.
| ???? Note:
A rating factor is a personal characteristic of a buyer used to appraise car insurance premiums. The less risky your rating factors are, the more economical your auto insurance policy will be. |
Below are several factors that can affect the cost of your auto loan insurance:
Insurance Type
Each type of insurance comes with different coverage amounts, which can affect your price. The amount you paid for credit life insurance won’t be the same as the one for credit unemployment insurance.
Credit Score
Your credit-based insurance score can affect your insurance rates, showing how you’ve managed your debt and credit score over the years. Data shows drivers with poor credit apply more claims than drivers with better credit.
The table below specifies “bad credit” as a credit rating between 300 and 579. A “good credit” rating sits between 580 and 800.
| Insurance provider | 6-month premium — Very Poor Credit | 6-month premium — Great Credit |
| Allstate | $1,692 | $885 |
| Farmers | $1,293 | $714 |
| GEICO | $1,087 | $512 |
| Liberty Mutual | $1,921 | $705 |
| Nationwide | $1,059 | $637 |
| Progressive | $1,658 | $617 |
| State Farm | $1,435 | $527 |
| USAA | $1,199 | $475 |
| Average | $1,418 | $634 |
| ???? Helpful Article:
Your bad credit history shouldn’t stop you from getting a loan. Here’s a list of top-rated loans in Canada with no credit check requirements: Top 5 Loans in Canada With No Credit Check |
Personal Factors
You’ll pay different amounts based on gender, occupation, health condition, and location. The average Canadian woman shells out 5-15% less for their car insurance premiums than the average Canadian man.
Different provinces will also enforce regulations to limit how much your lender can charge you.
Car Model/Type
Insurance cost on a sports car will be more costly than premiums for an old Civic. If a car costs more to replace, the insurance company will invoice you extra monthly to cover these potential costs with collision and comprehensive coverage.
Loan Term and Amount
The cost of your auto loan insurance positively correlates with the car loan amount and the loan duration. The higher the loan amount and duration, the higher the insurance cost.
Driving Experience
When giving insurance rates, the insurer assesses your record to confirm whether you drive responsibly. The more infractions and claims you have, the riskier you look. Therefore, your rate will be higher.
| ⚠️ Warning:
A dubious lender might sneak car loan insurance into the terms and conditions of your car loan. Ensure to read your loan contract carefully before signing. Don’t hesitate to ask your lender for clarification if you notice that your loan conditions mention or reference credit or car loan insurance. |
Benefits of Car Loan Insurance
Auto loan insurance is highly beneficial, as it saves you from extra expenses if you get into any unforeseen mishap during your loan period.
Some benefits of car loan insurance include:
- Auto loan insurance gives you peace as you are assured that you can afford to keep your vehicle even if you can’t work.
- Car loan insurance covers some parts of your loan cost if you meet the eligibility criteria to enact coverage.
- It also prevents your credit score from reducing if you can’t make payments due to unavoidable situations such as injury, illness, or job loss.
- It is easy to qualify for car loan insurance as long as you aren’t over the maximum age limit and don’t have any pre-existing medical conditions.
Drawbacks on Car Loan Insurance
Insuring your car loan, though it has several benefits, also has disadvantages. This is why it’s vital to research several insurance providers and their packages before venturing into one.
One of the drawbacks of getting car insurance bundled with your car loan is your benefits decrease as you pay off your vehicle. Other than this, you also:
- Might be better off saving money to pay off your car loan in an emergency if the insurance terms are not worth it.
- You could end up paying for an insurance policy that doesn’t cover you if you don’t meet the eligibility criteria for your loan insurance.
- You can only use the money paid out by the insurance policy to pay off your vehicle. It is rigid, as this expenditure may be outside your top priority now.
Wrapping Up
Although expensive, car insurance provides financial protection and peace of mind. Ensure to compare rates and policies from several insurers to avoid paying more than you should.
Conducting in-depth research on car loan coverage and reading the tips provided in this article will help you maximize your savings by minimizing your insurance rates.
FAQ on Car Loans Requiring Full Coverage in Canada
Can I cancel my loan insurance if I no longer need it?
You can cancel your loan insurance since adding to your coverage is not compulsory.
How much coverage do I need for a financed car?
You will need full coverage for a financed car.
What happens if you drop full coverage on a financed car?
If you drop full coverage on a financed car, your lender can repossess the car or require you to pay the entire loan balance.
How can I buy affordable car insurance?
Buy a used car that is affordable to you, and also consider working with an insurance broker to help ensure you get the best auto insurance rate.
Do I need to complete a health report to qualify for car loan insurance?
Some lenders may require your health information, while others will not.
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