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How financed car insurance works
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Purchasing a car is still a dream for many, however, many people do not have the money necessary for the purchase to be made in cash and it is important to know How financed car insurance works.

To achieve this goal of your dream car, there is the option of car financing, which allows you to purchase the vehicle while you pay for it over a set period of time.


When opting for financing, in addition to adjusting the installments to the budget, other measures must be taken to preserve this achievement. Taking out insurance is one of them. When taking out insurance for the financed car, the insured person experiences the peace of mind of knowing that their investment will be protected.

How financed car insurance works

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But in practice, how does insurance for financed cars work?

The first step when taking out insurance for financed cars is to inform the broker of this fact. This is essential information to ensure vehicle coverage in the event of accidents.

If you have a current and up-to-date policy, if there is a partial loss, or just servicing third-party vehicles involved in the accident, nothing changes. The insured will pay the deductible and the insurance company will pay the other costs to repair the vehicle. In the case of service to third parties, there will be no deductible payment.


In the case of a total loss, due to theft, theft or collision, the process is a little different. As it is sold to the bank or financial institution, the property belongs to the creditor and serves as collateral for financing. This way, even if the vehicle is stolen, for example, the debt remains.

By taking out insurance for financed cars, the insured will have three options to settle the debt with the financial institution and receive compensation.

If the insured has resources, he or she can pay off the balance of the financing and receive full compensation from the insurer after the sale of the asset.

If the debt balance is high and the insured does not have the resources to pay it off, the finance company will formally inform the outstanding balance and the insurer will pay the amount owed directly to the finance company, up to the limit contracted in the policy. The difference between the amount paid to the creditor and the full compensation amount is then transferred to the insured.


For those who are unable to pay off their debt with the bank, or have a debt balance greater than the full value of the compensation, there is the possibility of replacing the asset as collateral in the contract.

The financial institution, however, is not obliged to accept this alternative. But it is possible to negotiate the so-called “warranty replacement”, stating that the compensation will be used to buy another car, which must be sold in place of the previous one.

The insurer must also be informed that this is the chosen option.

It is important to highlight that the insurance compensation will always be up to the contracted value and only covers the value of the asset, not the interest on the financing. But when you anticipate paying a debt, you only pay the principal. The bank can no longer charge interest on the amount being repaid.


How financed car insurance works

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How financed car insurance works


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How financed car insurance works

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