Should You Drop the Full Auto Insurance on Your Older Car?
Itâ€™s no secret that maintaining full auto insurance coverage is a requirement for individuals who are paying off a balance on an auto loan. Once a loan is paid off, however, full coverage insurance is no longer a requirement to the relief of many car owners.
Some people take the opportunity to drop their coverage as soon as their vehicle is paid off, but this isn’t always a good idea for some drivers.
Car Financing Requires Full Coverage Insurance
If you’ve ever financed a new or used vehicle, you are well aware of the requirement to maintain full coverage insurance on your vehicle.
Full coverage is a shorthand phrase that means a vehicle owner has purchased an auto insurance policy that includes liability, collision and comprehensive coverage. This type of coverage is required by lenders to ensure the car is fully covered in the event of an accident, since they are technically the vehicle’s owner.
But once you’ve paid off your loan and have been handed the title, you are no longer required to maintain full coverage, which means your only required form of coverage is liability.
Is Maintaining Full Auto Insurance for Older Cars Smart?
If you are accustomed to the security of having full coverage, but aren’t exactly thrilled about paying the additional cost, you may be feeling torn about whether to keep or drop some components of your auto insurance.
The good news is there are a few ways to help you choose which path to take. Consider the following questions as you decide:
- Has my car lost much value? If your car has maintained a lot of value since the time you purchased it, you may want to hold on to your full coverage insurance. If your vehicle is totaled, your insurance company may furnish you with enough money to purchase another quality vehicle. But if your car is now a â€œclunkerâ€ worth only a couple of thousand dollars, you may benefit from dropping the insurance and setting those savings aside to make a down payment on another car when needed.
- Do I have emergency car savings? If your car is still relatively new (5-7 years old) and you donâ€™t have money to pay for accident or repairs that could soar into the thousands, then keeping the auto insurance you currently have can make financial sense.
- Can I lower my deductible? Sometimes keeping full coverage on an older car is worth it, because the cost drops as the car ages. Also, some companies allow drivers to have $100 or even $0 deductibles, which means nothing would have to be paid upfront to file a claim. If you find that the annual premium costs (plus deductible) are still affordable, keeping your insurance could be beneficial.
- How often do I drive the car? If your car isn’t driven much, paying for full coverage is likely a waste of money. However, if you still want to maintain this security, you can also consider Pay-as-You-Drive (PAYD) coverage that offers discounts based on miles driven and overall driving habits.
The decision to keep or drop full coverage on an older car is a deeply personal one. Some people believe in maintaining all forms of coverage over the life of the vehicle, while others drop everything but liability insurance as soon as possible.
Fortunately, there really is no right or wrong decision. In the end, if you feel you’ve taken the wrong path, rest assured that your insurer will oblige in switching to a coverage option you most desire.