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Financed VS Owned: Does It Affect Car Insurance?

When you own a vehicle it means that the vehicle is fully paid for and there is no outstanding balance owing to a lender. You have the ability to purchase liability-only insurance. However, when you finance a vehicle the lender has a financial interest in the vehicle and sets certain specifications in the agreement pertaining to car insurance to protect their interest. As many people find themselves in a position where they cannot purchase a vehicle outright, they may choose to finance a vehicle through a lender. 

Are Financed Cars More Expensive to Insure?

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Whether you finance, own, or lease a vehicle the insurance rate will be pretty much the same as car insurance premiums are based on several factors. 

Is Car Insurance Cheaper If You Own?  

Car insurance is based on several factors whether you own, lease, or finance a vehicle. 

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

The lender will have certain conditions in the purchase agreement pertaining to car insurance to protect their financial interest.  Typically this will include full coverage. 

When You Finance a Car Does it Include Insurance?

No, the buyer and driver of the financed vehicle must arrange their own car insurance as set out in the financing agreement.

What is Different With Car Insurance Between Financed and Owned Vehicles?

The biggest difference with car insurance between owning and financing a vehicle is almost all lenders require collision and comprehensive coverage on top of the provincial and federal laws pertaining to liability insurance. When you own your own vehicle you have the option of dropping collision and comprehensive coverage and opting for a liability-only policy. However, when you are financing a vehicle in order for the lender to protect their financial interest in the vehicle their expectations pertaining to car insurance are much higher. It is very important to have a clear understanding of the car insurance coverage the lender requires to ensure you have the proper coverage you need. 

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

When you drive a financed vehicle and you are involved in an accident causing damage or loss to the vehicle, all claim payments are made to both you as the driver and the lender who is the loss payee. The amount owing on the loan of the vehicle must first be paid to the lender. Anything over and above that will be paid out to the driver/insurance policy owner. Many lenders monitor your car insurance policy for regular status notifications to ensure their investment is being well protected. 

Common Myths Pertaining to Car Insurance

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There are many myths that circulate pertaining to car insurance. It is very important that you know all the facts about car insurance when you purchase it to ensure you have the protective coverage you need for your situation. Here are some common myths and the correct facts surrounding these myths. 

Myth – Incurring a high number of parking tickets will raise your insurance premiums

Fact – Insurance company’s don’t worry about parking tickets. Parking tickets have no impact on your car insurance. 

Myth – If a police officer states you are at-fault your insurance rates will increase.

Fact – This is not necessarily true. The insurance adjuster/claims representative will determine fault according to the provisions laid out in the Fault Determination Rules in Ontario. However, a police officer may charge you with a violation. 

Myth – If someone steals your vehicle and is involved in a collision causing damage to your vehicle, you are responsible for the damages.

Fact –  If someone steals your vehicle, it means they did not have your permission to drive the vehicle, however, your insurer will investigate the situation and have the final say. 

Myth – If you leave your keys in a vehicle or the doors unlocked and it is stolen, your insurance provider will not cover your loss. 

Fact – This is a common myth many people believe is true. However, in most cases, whether you leave your vehicle unlocked, keys in the vehicle, and even keys in the ignition, a stolen car claim will be covered. Typically this type of loss is covered under Comprehensive, All Perils, or Specified Perils coverage in your policy. Any contents stolen from inside the vehicle would be covered under your home insurance policy as car insurance pertains to damage to the vehicle itself, not the contents. 

Myth – Red cars cost more for car insurance.

Fact – The colour of a vehicle has nothing to do with the insurance premium you will pay.

Myth – If you have a bad driving record you will never get car insurance.

Fact – Anyone driving in Ontario has a right to obtain car insurance. However, not all insurers will insure you due to your bad driving record as you would be considered a high-risk driver and be an insurance risk. There are special high-risk insurance providers available, but you will pay considerably higher insurance premiums when you are deemed a high-risk driver. 

Myth – Ontario’s No-Fault Insurance Program means an accident is never your fault.

Fact – This is a very common misconception. Ontario’s no-fault insurance plan means you only deal with your own insurance provider. Your insurance company will determine whether or not you are at fault and to what degree according to the government’s Fault Determination Rules. 

Myth – If I’m in an accident with a financed vehicle, I don’t have to pay the outstanding balance of the loan.

Fact – The lender always gets paid the balance owing first. If the vehicle has a higher value than the balance owing on the loan, you will be paid the remainder of the loss. 

Myth – The higher the premium I pay, the better coverage I will have. 

Fact – This is not true. Premiums can vary from one insurance provider to another. The premium you pay for the exact same year, make, model, same driver, with the exact same coverage can have a wide range in premiums. This is why it is so important to shop around online to obtain various quotes before buying car insurance.

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