What type of coverage is generally mandatory for financing a vehicle?

Liability coverage is typically the type of insurance that financial institutions require when you are financing a vehicle. This aspect of coverage protects you from claims made by others due to damages or injuries you may cause while operating your vehicle. When a lender finances a vehicle, they want to ensure that their investment is protected against potential legal claims stemming from accidents for which the policyholder might be responsible.

While collision and comprehensive coverages are important for protecting your own vehicle from damages, they are usually not mandated by lenders, although they may be highly recommended. Uninsured and underinsured motorist coverage provides protection when the other party in an accident either lacks insurance or does not have enough coverage to pay for damages; however, this type of coverage is not typically a requirement for financing a vehicle. Thus, liability coverage stands out as the essential requirement linked directly to the financing of a vehicle.