The word "qualifying" means that the policy must meet certain requirements. A policy that would only pay $1000 to replace a $20,000 car would not meet the requirements of a lender (would not be "qualified"), because the lender wouldn't be assured that they could get repaid if the car were destroyed.

If you have insurance on your automobile, you might have insurance that covers “liability” but not “collision.” This means if you hit someone or you hit someone's house, the insurance covers that person's medical bills or to repair their house, but not it does not cover the cost of repairing the dent in your car. If you want to buy a car, and you need to get a loan from a bank to do so, the bank wants to make sure that the car does not get dented (but they don’t care about the person or house you hit). So the bank will require that you have a “qualifying insurance policy” to cover fixing the car, because if you default on your loan, the bank owns your car.