The day you pay off your car loan can be an exciting time. You finally get to stop making payments for your vehicle.
Yet, your car did not change because of this milestone. Its value remains.
For this reason, you should not cancel your car insurance.
It is a common misconception that you should lower your auto insurance coverage after you pay the vehicle off. However, doing so could put you at risk.
Why Have Auto Insurance?
Car insurance provides financial protection to you should an accident or damage harm you, your vehicle or someone else. All drivers must meet state laws. In most states — including North and South Carolina — this means drivers must at least have at least minimal liability insurance. You will need to continue to carry this insurance coverage while you are driving the vehicle. Your policy protects other drivers if you cause damage to their vehicle or person.
Vehicles with a loan usually must carry full coverage — including comprehensive auto insurance. This insurance is more extensive than the minimal coverage required by law. For instance, you may need coverage for fires, theft, and vandalism.
Most lenders also require collision insurance. This helps cover losses related to impacts with stationary objects, accidents and a similar damage to the car.
These types of insurance help protect the value of the car. The lender wants to ensure the value is protected, as it helps them maintain the full worth of their investment.
After You Pay Off Your Car
Once you make that final payment, you may believe you no longer need to carry comprehensive or collision insurance. This is not true.
Your obligation to maintain this insurance to your lender is no longer present. However, your vehicle still has significant worth. If you are in a car accident and the vehicle suffers damage, could you afford to replace it easily? Remember, liability insurance protects other drivers. It offers you no protection for your vehicle.
That said, it can be beneficial to reduce car insurance on low-value vehicles. These vehicles may have a short lifespan left. You may not drive them much. They may even have damage to them. When the value of the vehicle is low, carrying high comprehensive coverage is often not necessary.
If your vehicle has value, protect that value. Auto insurance can make that possible. Invest in comprehensive and collision coverage. These protects your investment. And they continue to do so long term.
Most drivers will benefit from maintaining comprehensive and collision coverage for most of the time they own the vehicle. So, contact your representative at The Coleman Agency to go over your coverage options.