To own a car can be an exciting moment in your life as you will be the owner of the car and there is a lengthy process associated with buying a car. Selecting the best brand that you like, choosing the best payment method and having insurance on your car. The brand of the car, model and type will play a major role in deciding the price of the car.
The most important thing is how you have purchased the car plays a significant role in the car insurance that you get. Insurance on your car has different aspects to deal with when it is purchased through a single payment and car loan. Here in this article, we discuss the impact of the car loan on car insurance.
Car insurance requirements & Car loan
Car loan is issued by the insurance company and it provides a way for the car user to buy a car with the loan. The finance is provided by the bank and a maximum of up to 80% of finance is covered. The remaining amount should be paid by the borrower. The borrower can decide upon the remaining amount to be paid based on the repayment capacity.
If a person has purchased a car through a loan then there are different requirements set by the insurance company. There are some compulsory guidelines that are issued in the UAE and in addition to that these requirements are set by insurance companies. Below listed are a few requirements that a car insurance company will set.
Comprehensive Insurance
Under this coverage, the car should be equipped with protection against theft, fire damage, human disasters, natural calamities and others. They should be protected against all human and natural disasters.
Collision Coverage
This coverage is provided along with the comprehensive insurance protection plan. This will cover all the damages which happen to the car. This will include damages due to collisions to a wall, parking cones and others.
Third-party Liability Cover
It is the most important and basic coverage that is provided in the UAE. This insurance coverage will take care of all the third party damages to the vehicle.
Accident cover
Personal accident and the injury cover is designed to protect the driver and the passengers in the event of the accident. There are some basic benefits designed into this policy.
Underinsured or uninsured coverage
If the opposite vehicle with which there is a collision does not have insurance or if it’s underinsured then this cover will provide protection and provide benefits.
Gap Insurances
There are some insurance companies that will insist on getting gap insurance with auto finance insurance. If your financed car is totalled before you pay off the loan the gap insurance will come to your rescue.
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Will Car loans increase the price of a car insurance policy?
Car insurance companies do not increase the insurance because of car loans directly. The insurance company will provide the policy at the same price whether you buy with a single payment or buy through the loan finance. The requirements provided by the car insurance company will increase the car insurance premium if you purchase through the finance.
Suppose, you did not take underinsurance or gap insurance and if the insurance company didn’t make it mandatory and if the car is totaled because of the collision it is a loss to the car owner. There is a risk associated with financed cars and the insurance company will insist on getting additional requirements to make sure that car owners and the car insurance company get benefited.
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Forgot to pay a premium?
When you buy a car on finance or lease a car then the lending institution will take approval and become a payee. If your car insurance expires the lender will get notified and the lender will have the option to buy the insurance and put that amount into your premium loan amount. Some insurance companies have the option to repossess the vehicle based on their policy.
What should you do after the loan payoff?
Once you pay off the car loan you will be free from the financial obligations. You should evaluate your car insurance plan and select the insurance cover again according to your requirements. Since the time you pay off the loan, there is a lot of wear and tear to the car. Consider all these aspects and take additional steps on life coverage of the car asset. It is advisable to do research and make the best decision depending on the loan tenure payment period and the usage of the car.
Takeaway
The car insurance requirements are definitely different for cash purchased and financed cars. The lenders will take many different steps to safeguard their money and make the car owner buy the right insurance plan. This will obviously increase the price of the insurance and it cannot be avoided as it is for the benefit of the car owners.
The best thing that you can do is pay off the loans as soon as possible. By doing so you can take the advantage of reducing the insurance premium. Once the loan is cleared, you can take the insurance cover as per your requirement.