Is Car Insurance Cheaper if You Own the Car?

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Owning your car won’t automatically mean that your
car insurance
is cheaper, but it does mean that you’ll have the option to lower your coverage and your premium as well. But it’s not always a smart move to do so—read on for the details!
  • Owning your car means that you can drop the extra coverage required by your lender, which lowers your premium.
  • Take your finances, your car, and your risk factors into account before deciding whether to drop full coverage.

Is car insurance cheaper if you own the car?

It can be! While the cost of your insurance policy won’t automatically decrease once you’ve made your last payment, you’ll have the option to decrease your coverage, which lowers your car insurance rates.
When a vehicle is financed, lenders typically require a
insurance policy to be maintained on the vehicle until the loan is paid off. There’s no single definition of what full coverage means, but it generally includes
your state’s minimum required insurance
, plus
collision coverage
—however, a lender may not let your deductible exceed $1,000 for these coverages. Depending on the vehicle and the amount of the loan, some lenders may also require
gap insurance
With a new car, lenders and
often require these coverages as a way to protect their financial stake in the vehicle. But once it’s paid off, they no longer have a say as to the kind of auto insurance you have—so if you want to, you can drop the extra coverage on your car, and decrease your insurance premiums as a result!
But before you contact your insurance company and tell them to cut your coverage down to the minimum for your newly paid-off car, there are a few things that you need to consider first!

What to do when you pay off your car

First of all, congratulations! Paying off a car is quite an achievement, so pat yourself on the back and get ready to enjoy a life without car payments. As previously mentioned, your car insurance premiums won’t drop simply because you own your car free and clear, but it does mean that you are free to explore other coverage options.
But before you make any changes, there are a few things to do first:
  • Make sure you get the title to your vehicle from your lienholder. This is typically mailed out after you’ve made your last payment, so you might want to double-check that they have the right address on file. 
  • Contact your insurance company and have them remove the lienholder from your insurance policy. They may want to see the title and any paperwork that was sent to you when you paid off your loan, so make sure you have all that ready to go. If a driver removes the coverage while they still have a loan or lease the loan/lease company will be notified and the driver will have mandatory coverage added to the loan/lease bill directly.
  • Finally, now it’s time to take a look at your coverage and see if there might be any changes that would make sense.
But how do you know what coverage to keep and what to drop? It depends on a lot of factors, like your car, your finances, your risk factors, and your level of comfort. Make sure to talk to your insurance agent to figure out what’s best for you, but here are a few general guidelines.
MORE: The 5 most common reasons your car insurance rate increases
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When to reduce your car insurance coverage

Deciding if you want to reduce your car insurance coverage primarily depends on your finances and your car’s value. It may be okay to drop full coverage for your car if:
  • Your car has depreciated (lost value) to the point where it no longer makes sense to have it fully insured
  • You have enough cash at hand to be able to comfortably pay out of pocket to have your car repaired or replaced in the event of damage or theft
You never want to pay more in insurance than your car is worth, so as your car ages make sure you keep an eye on its actual cash value (ACV) versus the cost of your auto insurance policy. And if you have plenty of cash on hand and are comfortable assuming the risk, paring your policy down to your state’s minimum coverage lowers your annual premium too. 
There is one kind of additional policy that it never makes sense to keep on a car you’ve paid off, and that’s gap insurance. Technically, you can
cancel your gap insurance
once your loan balance is less than what the car is worth.

When to keep extra car insurance coverage

But generally speaking, it’s a good idea to keep the additional coverage for a newly paid-off car. Take your specific circumstances into account when making your decision. If you live in an area with a high rate of car theft and vandalism, keeping your comprehensive coverage makes a lot of sense.
And unless you're ready, willing, and able to pay out of pocket for any damages to your car that occur in the event of an accident, it’s a wise choice to keep your collision coverage, too. Other scenarios where you’d want to retain a full coverage policy include:
  • You have plenty of savings, but don’t want to spend more than necessary to repair or replace your car 
  • You have a car that’s a classic or a rare collectible model
  • You like having the extra security of a full-coverage policy

How to find the best insurance costs

Even if you do decide to keep a full-coverage policy on your car, there are still a few ways that you can lower your auto insurance premiums. Here are some tried and true methods for getting
cheap car insurance
  • Comparison shop: Did you know that most experts recommend that you shop for car insurance every six months? Different car insurance companies use different algorithms to determine their pricing, and getting insurance quotes from several different providers can reveal some significantly different costs!
  • Dig for discounts: Car insurance discounts are more available and abundant than you might think! Most companies don’t advertise all their discounts, so make sure you ask around as to what discounts your insurance providers offer.
  • Increase your deductible: Collision and comprehensive insurance policies come with deductibles, which is the amount you have to pay upfront before your car insurance policy kicks in. If you have a higher
    , then your premium costs will be lower—just make sure not to have a higher deductible than you can reasonably pay!
  • Keep a clean driving record: Your
    driving record
    plays a big part in determining how much you’ll pay for insurance. Even minor tickets can cause a rate hike, and a major offense like a DUI can result in increased insurance costs for years.
“I was paying $350 a month for my new car. With
, I set up a new policy in under 30 minutes that will save me over $1000 a year!” —Mariah K.
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In most cases, it’s a good idea to keep full coverage if you can. The extra policies provide a good amount of protection in a wide variety of scenarios, including collisions, theft, and damage caused by random
acts of god(s)
. But if your car isn’t worth a lot, you have enough cash on hand to pay for damages outright, or you really need to trim your budget down, dropping full coverage can be a viable option.
It won’t automatically go down just because you’ve paid off your car loan, but you’ll now have the option to lower your coverage amount if you wish—which means lower premiums.
Reviewed by Brittni Brinn.
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