Should You Drop Full Coverage When Your Car is Paid Off?
Many auto lenders require that you maintain full or comprehensive auto coverage while you have a car loan in place, and some states have similar requirements. However, as soon as you pay off your auto loan, you may have the opportunity to adjust your coverage to a liability-only policy. A liability-only policy is much more affordable than a comprehensive policy, and you may shop around for auto insurance quotes to determine the amount of savings you can enjoy. This is a fast and easy way to save money on your monthly expenses, and it can seem appealing to move forward with a coverage adjustment. However, before you drop full coverage on your vehicle, consider these points.
The Need to Replace the Vehicle
With liability-only insurance, your policy will cover repairs and other related expenses for the other party in an accident. Your own expenses will not be covered. In the event your vehicle experiences a total loss, you will not benefit from a financial reimbursement. Some people may not need to replace a vehicle. For example, the coverage may be on a third vehicle that only sits in the garage most of the time, and they have no need to replace this vehicle if it is totaled. Other people may have the financial means to replace a vehicle on their own, and this may be particularly true if the vehicle has a very low value. However, if you are not able to financially replace the vehicle and may need to do so, maintaining adequate coverage on it is in your best interest.
Your Ability to Pay Out of Pocket If You Get in an Accident
Auto insurance does more than just pay out when you have a total loss on your vehicle. It also can pay out if you need repair work done the car, and some policies have personal injury coverage, personal property coverage and more. For example, you may have computer equipment in the vehicle at the time of the accident that is destroyed, and personal property insurance would pay to replace the equipment. Likewise, if your own health insurance does not cover some of your medical bills or the medical bills for others involved in an accident, your auto policy may provide some coverage in this area. Consider your financial ability to pay for all related costs associated with an accident before you cancel your comprehensive insurance policy.
You can save a considerable amount of money by dropping to a liability-only policy, but you can see that there are financial benefits associated with holding onto your existing coverage. If you are looking for a great way to save money on coverage, it may be better to shop around for full auto insurance quotes rather than liability-only quotes. For more information, InsuranceHero.ca is a helpful blog with additional resources.