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HomeCar Insurance ResourcesFinanced vs Owned: How Does It Affect Car Insurance?

In Canada, whether you finance, lease, or own your car outright can have an influence on your car insurance rates. Here’s a breakdown of how each scenario might affect your insurance:

  1. Financed Cars:
    • Lender Requirements: When you finance a car, your lender will typically require you to have both collision and comprehensive coverage in order to protect their investment. These coverages will pay for damages to or theft of your car.
    • Higher Limits: Some lenders might also dictate the minimum amount of liability coverage you need. This can sometimes be higher than the minimum provincial requirement.
  2. Leased Cars:
    • Lender Requirements: Similar to financed cars, if you lease a car, the leasing company will usually require you to carry collision and comprehensive coverage.
    • Gap Insurance: Leasing companies might also recommend or require “gap” insurance. This covers the difference between what you owe on the lease and the car’s actual value if it’s declared a total loss.
  3. Owned Cars:
    • No Mandatory Comprehensive/Collision: If you own your car outright, you’re not obligated to have comprehensive or collision coverage. However, these can be beneficial in protecting your investment. Without these coverages, you’re on the hook for any repairs or replacement costs.
    • Potential for Lower Premiums: Since you don’t have to meet lender requirements, you have more flexibility in adjusting coverages and limits, potentially leading to lower premiums.

It’s essential to note that while the way you finance or own your car might affect the coverages you’re required or choose to have, other factors play a more significant role in determining your insurance rates. These factors include:

  • Your driving record.
  • The type of car you drive.
  • Your age, gender, and marital status.
  • Where you live.
  • How much you drive.

In conclusion, while the way you finance or own your car can influence your insurance needs and therefore the cost, it’s just one of many factors that determine your rates. If you’re looking to reduce your insurance premiums, it’s always a good idea to shop around, bundle insurance policies, and inquire about available discounts.


Province by Province

Car insurance in Canada is primarily regulated at the provincial level, and each province has its own rules and systems in place. While the basic principle remains — financed cars generally require more comprehensive coverage because of lender stipulations — there are nuances province by province. Here’s a broad overview:

  1. British Columbia (BC)
    • Insurance Provider: The Insurance Corporation of British Columbia (ICBC) is the primary provider, though optional coverage can be purchased from private insurers.
    • Financed vs. Owned: If you finance a vehicle in BC, lenders will typically require comprehensive and collision coverage, irrespective of ICBC or private insurance.
  2. Alberta
    • Insurance Provider: Private insurance companies provide all auto insurance.
    • Financed vs. Owned: The requirements for financed cars to have full coverage remains consistent here as well.
  3. Saskatchewan
    • Insurance Provider: Saskatchewan Government Insurance (SGI) offers basic coverage, but residents can purchase additional coverage from private insurers.
    • Financed vs. Owned: As with other provinces, if you finance your vehicle, expect to need full coverage.
  4. Manitoba
    • Insurance Provider: Manitoba Public Insurance (MPI) offers the basic required insurance.
    • Financed vs. Owned: Financed cars typically need comprehensive and collision coverage.
  5. Ontario
    • Insurance Provider: Private insurance companies handle auto insurance.
    • Financed vs. Owned: Lender requirements for comprehensive and collision coverage for financed cars apply in Ontario.
  6. Quebec
    • Insurance Provider: A hybrid system. The Société de l’assurance automobile du Québec (SAAQ) covers injury or death, while private insurers cover property damage.
    • Financed vs. Owned: For damages to the vehicle itself, financed vehicles will likely need comprehensive and collision insurance from a private company.
  7. Newfoundland and Labrador
    • Insurance Provider: Private insurance companies.
    • Financed vs. Owned: As with other provinces, comprehensive and collision coverage is typically required for financed cars.
  8. New Brunswick, Nova Scotia, Prince Edward Island
    • Insurance Provider: Private insurance companies.
    • Financed vs. Owned: Lender requirements for comprehensive and collision coverage on financed cars remain consistent in these provinces.
  9. Yukon, Northwest Territories, Nunavut
    • Insurance Provider: Private insurance companies.
    • Financed vs. Owned: Financing a car in these territories will generally necessitate comprehensive and collision coverage.

Do You Have To Keep Full Coverage on a Financed car?

Yes, in Canada, if you have a financed car, the lender will typically require you to maintain full coverage on the vehicle for the duration of the loan. This is to protect their financial interest in the car. Here’s what “full coverage” usually implies:

  1. Collision Coverage: This covers damages to your vehicle if you’re involved in a collision, whether with another vehicle or an object.
  2. Comprehensive Coverage: This covers damages to your car caused by events other than collisions, such as theft, fire, vandalism, or natural disasters.

The reason lenders require this level of coverage is simple: until you’ve paid off the loan, the lender technically has a stake in the vehicle. They want to ensure that if anything happens to the car, the value of their collateral (the car) is protected.

If you drop full coverage and only keep the mandatory provincial coverage (which typically only includes third-party liability) and something happens to the vehicle, you would still owe the remaining balance to the lender but might not have a functioning vehicle or the means to repair or replace it.

Additionally, if the lender discovers you’ve dropped the required coverage, they could take actions such as:

  • Forcing you to reinstate the necessary coverage.
  • Adding their own insurance to your loan (force-placed insurance), which can be significantly more expensive and provide less coverage than what you might have chosen for yourself.
  • Declaring the loan in default and possibly repossessing the vehicle.

When You Finance a Car Does it Include Insurance?

No, financing a car typically does not include insurance. While some lenders may offer insurance as an optional add-on to a car loan, the cost of insurance is usually not included in the loan itself.

If you have a financed car, you will need to purchase your own insurance coverage, either through your own insurance company or through one recommended by your lender. Your lender may require you to have comprehensive and collision coverage, which is designed to protect the lender’s investment in the vehicle, and will pay out if the vehicle is damaged or destroyed in an accident.

The exact requirements for insurance can vary depending on the lender, so it’s a good idea to check with your lender to see what they require. If you don’t carry the required insurance, your lender may purchase insurance on your behalf, which can be more expensive than if you were to purchase it yourself.

What Happens If I Get Into An Accident With a Financed Vehicle?

If you get into an accident with a financed vehicle in Canada, several steps and considerations come into play. Here’s a general overview of what might happen:

  1. Immediate Actions After the Accident:
    • Safety First: Ensure everyone is safe. If anyone is injured, call for medical assistance.
    • Notify Authorities: Depending on the severity of the accident and local laws, you might need to inform the police. Some provinces mandate reporting any accident where damage exceeds a certain dollar amount.
    • Exchange Information: Collect information from all involved parties, including names, contact details, insurance details, and vehicle details.
    • Document the Scene: Take photos of the accident scene, the damages to all vehicles, and any relevant road signs or signals.
  2. Notify Your Insurance Company:
    • Inform your insurance company about the accident as soon as possible. They will guide you through their claims process.
    • Your insurer will determine if your claim is valid and if you’re at fault or not. Being at fault can affect your future insurance premiums.
  3. Vehicle Repairs:
    • If your vehicle needs repairs, your insurance company will typically provide guidance on approved repair facilities.
    • The repair cost will be covered by your insurance if you have collision coverage, minus your deductible. If you’re not at fault, the at-fault driver’s insurance might cover the expenses.
  4. Financed Vehicle Implications:
    • Keep Paying Your Loan: Regardless of the accident, you must continue making payments on your car loan.
    • Total Loss Scenario: If your car is deemed a total loss (it would cost more to repair than its actual value), the insurance company would typically pay out the car’s market value. If this amount is less than what you owe on your loan, you would be responsible for the difference unless you have Gap insurance. Gap insurance covers the difference between the vehicle’s value and the remaining loan amount.
  5. Possible Premium Increase:
    • If you’re found at fault for the accident, your insurance premiums may increase at renewal time. However, if you’re not at fault or if your province has a no-fault insurance system, your rates might not be affected.
  6. Consider Legal Implications:
    • Depending on the nature of the accident, there could be legal consequences or lawsuits. It’s essential to be honest and detailed in your reports to both the authorities and your insurance company.

What happens when a car is written off on finance?

When a car is written off while it’s still under finance, the situation can become a bit complex. Here’s a general overview of what happens:

  1. Determination of “Total Loss” or “Write-Off”:
    • After an accident or significant damage, the insurance company will evaluate the cost of repairs. If the cost to repair the vehicle exceeds a certain percentage of its value (this percentage varies by insurer and jurisdiction), the insurer may declare the car a total loss or “write it off.”
  2. Insurance Payout:
    • If the vehicle is written off, the insurance company will typically provide a payout equivalent to the car’s market value before the accident or damage occurred. This payout might not necessarily match the remaining balance of the car loan.
  3. Loan Obligation:
    • Even if the car is written off, the borrower remains responsible for the outstanding loan balance. If the insurance payout does not cover the entire remaining balance, the borrower will still owe the difference to the lender. This situation can lead to “negative equity,” where you owe more on the loan than the car was worth.
  4. Gap Insurance:
    • Gap insurance is designed to cover the difference (or the “gap”) between the car’s market value and the remaining loan amount. If you had gap insurance, it would kick in to cover the outstanding loan balance that exceeds the insurance payout. This ensures that you don’t remain in debt for a vehicle you can no longer use.
  5. Settling the Loan:
    • The insurance payout is usually sent directly to the finance company to pay off or reduce the loan. If the payout covers the entire loan, the loan will be settled. If there’s a remaining balance and you don’t have gap insurance, you’d typically need to continue making payments or find another way to pay off the balance.
  6. Next Steps:
    • Once the loan is settled, either through the insurance payout or combined with gap insurance, you can decide whether to finance a new vehicle or take other transportation options.
    • If you’re considering financing another car, some lenders may offer a “roll-over” option where the remaining balance from the written-off car’s loan gets added to a new loan for another vehicle. However, be cautious, as this can lead to even more significant negative equity.


Leasing A Car

1. Does financing a car increase insurance rates?

Answer: Financing a car doesn’t directly increase insurance rates. However, lenders typically require comprehensive and collision coverage to protect their investment, which can raise your premiums compared to having just the mandatory liability coverage.

2. Do I need full coverage on a financed car?

Answer: Yes, most lenders will require you to have full coverage (both comprehensive and collision) on a financed car to ensure their investment is protected in case of damage or loss.

3. If I own my car outright, can I drop comprehensive and collision coverage?

Answer: Yes, if you own your car outright, you have the flexibility to choose the type of coverage you want. However, without comprehensive and collision coverage, you’d have to bear the repair or replacement costs in case of damage or theft.

4. Does owning a car reduce insurance rates?

Answer: Not directly. Insurance rates are primarily based on factors like your driving history, vehicle type, location, and usage. However, owning a car gives you the flexibility to opt for lower coverage levels, which can reduce premiums.

5. What is gap insurance, and do I need it for my financed car?

Answer: Gap insurance covers the difference between the actual value of the car and the remaining loan amount if the car is totaled or stolen. It can be beneficial for financed cars, especially if the loan amount exceeds the car’s depreciated value.

6. Can I switch insurance companies if I’m still paying off my car loan?

Answer: Yes, you can switch insurance companies even if you’re still paying off your car loan. However, ensure that there’s no lapse in coverage and that your new policy meets your lender’s requirements.

7. What happens if I drop required coverage on my financed car?

Answer: If you drop the required coverage on a financed car, you’ll be violating the terms of your loan agreement. The lender might add their own insurance (force-placed insurance) which can be costly, or even consider the loan to be in default.

8. Are leased cars more expensive to insure than financed or owned cars?

Answer: Leased cars often have similar insurance requirements to financed cars. However, leasing companies might also require higher liability limits or additional coverages, which could lead to higher insurance premiums.

About the Author: Valerie D. Hahn

Valerie is an insurance editor, journalist, and business professional at RateLab. She has more than 15 years of experience in personal financial products. She strives to educate readers and ensure that they are properly protected.

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