Why does my bank require me to purchase physical damage insurance?

In short, because they own the vehicle. Once you have completely paid for the vehicle and hold the title to it, you can choose not to insure it for physical damage. Typically, you should decide not to purchase this coverage only if replacing it would not cause you financial strain or if you would not plan to replace it.

If you choose not to insure a vehicle, you may want to plan now for the services you are losing: subrogation against other drivers who damage your vehicle, maximizing the salvage value of your totaled vehicle, and locating an inexpensive towing service.