CONGRATULATIONS on paying your vehicle off!
A question we are often asked is “If I paid off my vehicle, what insurance coverages should I have now?” They want to make sure their car is covered if they hit someone, or if someone hits them.
You’ll need to continue to carry at least state-minimum auto insurance liability coverages on your vehicle. But now you have the choice to keep or drop physical damage coverages of collision and comprehensive. Without a lender, it’s totally up to you to decide if these coverages still fit your needs and finances.
If you want specific protection — the capability to make a claim with your own car insurance company to fix your vehicle whether the fault is yours or not — you’ll want to keep collision coverage on your vehicle.
Collision coverage is what covers your vehicle, up to its actual cash value, if it’s damaged in an auto accident. This means if someone hits you, you hit another vehicle or object, or you overturn your vehicle you can make a claim with your auto insurer for damages to be repaired.
If the damages are too extensive for repairs to be made or make it uneconomical to repair, then your car insurance provider will instead pay you the value of the vehicle for the condition it was in the moment before the accident.
For added protection for your vehicle, we recommend you also continue with comprehensive coverage.
Comprehensive insurance covers your vehicle for damages that result from situations that are “other than collision.” This normally includes such perils as theft, vandalism, glass breakage, and striking an animal. It will also cover damage sustained from natural weather events, such as a tornado, hurricane, hail storm or wind storm.
Like collision coverage, comprehensive pays out for the repair of your vehicle or the actual cash value if the vehicle is declared a total loss or is stolen and not recovered.
Both physical damage coverages come with a deductible amount of your choosing. If you choose a higher deductible, your rates will be lowered somewhat. And the reverse is true; if you choose a lower deductible your rates will be a bit higher.
Your lienholder may have dictated what your maximum deductible was while you were still paying off the car, but now the decision is yours. Remember, though, to select an amount that you can afford since the deductible is what you must pay before your collision or comprehensive benefits kick in.
If you now have extra money in your budget, due to no longer having a car payment, and have assets to protect (a house, savings, and things of this nature), then we suggest you not only keep collision and comprehensive coverage, but also raise your liability limits if they are low.
Higher liability limits means more protection. State minimum car insurance coverages typically aren’t enough to cover a serious accident, and if your limits are exceeded, you’ll be looked at to personally pay for any remaining expenses. Higher limits, such as 100/300/50, give you much better protection — and it doesn’t have to break the bank.
When you’re thinking about changes to coverages, limits or deductible amounts on your auto insurance policy, feel free to contact us. We can provide you with expert advice.