Car Insurance for a Paid Off Vehicle

You've done the hard part & paid off your car loan. But now you might be paying too much for car insurance.

Car Insurance for an Owned Vehicle


If you’ve gone through the process of owning a vehicle, you understand it can be a pretty big deal. You officially own your vehicle and no longer have to worry about monthly payments, car loans, or annoying lease agreements. But the big thing that comes with owning a car is deciding how to insure it. If you have a lease or a loan on the vehicle, you’re sharing ownership with a dealership or bank and thus need to make sure it’s probably insured. But, if you own the vehicle, you have some freedom when it comes to insurance that can save you money. Let’s explore.



The ins-and-outs of owning a car




Your loan is paid off . . now what?


Paying off your loan and officially owning your vehicle is a big step. You can remove your additional interest/loss payee from your insurance information and don’t have to worry about paying any car payments. In terms of insurance, what happens next is really up to you.

If your vehicle is still relatively new, you’ll probably want to keep all your coverage to protect your asset. In the event you want to buy a newer vehicle and start this loan/purchasing process over again, the sale of your original car could be used to make a down payment. So, you’ll want to maintain physical protection (your collision and comprehensive coverage) to protect it.

If you’re uncertain and looking for ways to cut insurance costs, you could consider if the value of your owned vehicle is worth the premium it costs to insure it. Here’s how to tell:

  • Determine the value of your vehicle through NADA or Kelley Blue Book
  • Speak with your insurance company and ask them how much additional premium it costs to have physical protection to your vehicle.
  • If the value of the vehicle is less than the premium determined in step 2, you could feasibly remove this coverage.
When should you drop full coverage on your car?

However, if the difference weighs in the favor of keeping the coverage, you could consider raising your deductible. Your deductible and your premium are inversely related — meaning, if you raise your deductible, you lower your premium.

By doing this, however, you assume a greater responsibility in the event you need to file a comprehensive or collision claim. Which, isn’t always a bad thing. While many people assume you should always file a claim if you’ve damaged your vehicle, you can seriously impact your insurance record and premium. Your collision coverage should be used lightly because the use of it is usually considered an at-fault accident. Meaning, your rate will increase and will increase for 3 years as most companies charge (rate) you for accidents and violations for 3 years.


Increase at 6 months Increase at 12 months Increase at 3 Years
$306 $612 $1,837

Your best bet is to get an estimate prior to contacting your insurance company. Using our State of Insurance data here (page 58), you can determine if the projected rate increase for your state is less than the cost of repair if you were to pay for it out of pocket.





How to save:


In addition to considering if your additional coverage is necessary, we have some other savings options for you and your owned vehicle. Let’s get to it.

Get on the right payment plan

By this, we are referring to how much you could save by changing how you pay your car insurance bills. If you’re paying by credit card on a monthly payment plan, you could save $27 a year by switching to using your bank account. Moreover, if you’re able to, paying your premium up front can save you $61 a year.


Savings Based on Method of Payment

Savings with Paid in Full Savings with EFT
$61 $27


Bundle your policies

Keeping all of your insurance policies under one company can lower your auto insurance premium an above of $73-142 a year. Most larger insurance carriers have renters, home, condo and umbrella policies available to purchase.


Savings on Bundlings

Savings with Renters Savings with Home
$73 $142


Drive safely

As we stated, any infraction ranging from a speeding ticket to an at-fault accident will be chargeable for 3 years. Because of this, driving safe and avoiding any unnecessary claims is imperative. You would not only face some stiff bills, but lose out on discounts like Safe/Good Driver.


Average Increase in Annual Premium in 2016

Accident/Violation 6 Month Premium Increase
None
Speeding 11 - 15 MPH Over Limit $141
Speeding 16 - 20 MPH Over Limit $153
Speeding 21 - 25 MPH Over Limit $165
At-Fault Accident $306
Reckless Driving $499
Racing $523
DUI $529


Consider telematics

Telematics are in-car devices that, after about 6 months of monitoring, create a profile after your driving habits. So, if you drive cautiously, you could see some savings. While this program isn’t available in every state (still a growing field of the insurance industry), here are some estimates from top insurance companies.


Company Estimated Savings
Progressive's SnapShot Average of $130
Allstate's Drivewise Average of 10-25%
State Farm's Drive Safe & Save Up to 15%
Esurance's DriveSense Varies
Nationwide's SmartRide Up to 40%
Liberty Mutual's RightTrack Average of 5-30%


Always shop around

Your insurance rate is changes any time you do. So, if you move, have a birthday, or like in this situation, pay your car off, you should look around to see if you could get be getting a better offer elsewhere. Do that here with us.


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Additional Resources:

Car Insurance for a Paid Off Vehicle

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