It’s the day you’ve been waiting for. You paid off your car. Congratulations!
As you enjoy the extra cash in your bank account, it may be a good time to take a look at another expense that impacts your budget: your auto insurance.
Now that you own your car, it’s reasonable to ask:
- Which coverages are optional when you own your car?
- Which coverages do you need to keep?
- Are there any adjustments you could make to save you money in the long run?
Once your car is paid off, you do have the option to remove some optional coverages – and that could lower your premium. However, it might still be good idea to keep them for financial protection after an accident. Remember, if you don’t have insurance, you can be stuck paying repair costs out of pocket.
Good news: When you’re with ERIE, you don’t have to go it alone. Your car insurance policy comes with your very own local insurance agent who can answer your questions, run the numbers and help you decide what’s best for your unique financial situation.
Here’s a guide to reassessing your coverage once you pay off your car.
How much car insurance is required in your state?
Before you start cutting any type of coverage from your policy, find out about your state’s requirements for auto insurance. Your local ERIE agent can explain how things work where you live.
While you might be legally required to have coverages like personal injury protection or uninsured or underinsured motorist coverage in some states, they could be optional in others.
For a state-by-state list, check out this guide to state insurance requirements from the Insurance Information Institute.
Do you need collision coverage when you pay off your car?
Collision coverage helps you cover the costs of repairing or replacing your vehicle ‒ minus the deductible ‒ after it is damaged in an auto accident. It’s often required by lenders, but once you own the vehicle, it may be optional.
But the question about whether or not to drop collision coverage isn’t always an easy one to answer. Because even though your vehicle is paid off, it really comes down to your car and your circumstances. Here are a few questions you should ask yourself.
- How much money do you have on hand? If you had an accident tomorrow, could you come up with the funds to repair or replace your car? Consider this: More than 6% of people who have collision coverage file a claim, and the average claim amounts to $3,435, according to a study by the National Association of Insurance Commissioners. Can you afford to pay nearly $3,500 out of pocket?
- How much is your car worth? Some will tell you to rely on the age of the car. But it wasn’t that long ago when most people thought about replacing cars when they reached the 10-year mark and racked up more than 100,000 miles. These days, many makes and models can outlast those old benchmarks. That means your 10-year-old car may have retained significant residual value.
- How much does full coverage cost? Take the cost of your annual premium and weigh that against your deductible and your car’s value. At a certain point, you and your agent may find there’s not much financial benefit to paying the additional costs, and then, it may be time to consider removing collision coverage from your policy.
When you’re with ERIE, your local agent can help you talk through these questions and determine if dropping collision coverage makes sense for you.
Do you need comprehensive coverage when you pay off your car?
Another coverage that’s optional after you pay off your vehicle loan is comprehensive coverage.
It helps you pay for vehicle damage that’s not caused by an auto accident. This includes things like:
- Fire and explosions
- Vandalism, including when someone keys or tags your car
- Theft-related damage, such as damage caused by someone breaking into your vehicle
- Storms, such as wind, hail, tornadoes, floods, earthquakes and hurricanes
- Falling objects like a tree limb falling on your parked car, or if someone’s hauling materials and something falls and lands on your car
- Windshield cracks and chips
- Animal-related damage, such as damage caused by hitting a deer that jumps out in front of you on the highway
As your car gets older, the overall replacement cost can be a factor in whether you want to continue with comprehensive coverage.
Quick tip: Here’s one measure offered by the Insurance Information Institute: Multiply your premium for comprehensive insurance by 10. If the value of the car is worth less than that total, it could be time to drop comprehensive coverage. Your local agent can help you run the numbers and make a judgement call.
Say ‘Goodbye’ To Gap Insurance
When you’re paying on a car loan or a lease, your car may be valued for less than what you owe. So, if your car is totaled in an accident, gap insurance helps you pay off your loan or lease, minus the deductible.
Now that your vehicle is paid off, this coverage isn’t necessary anymore.
Let your insurance agent know you paid off your car
With your vehicle paid off in full, it’s time for your insurance agent to remove your auto lender’s name from your insurance policy. This is an important step to take, especially if you’re ever in an accident.
When it comes time for your insurance company to pay a claim, they’re obligated to issue a check to the name listed on the policy. When the information isn’t correct and your auto lender’s name is still on the policy, there’s typically a delay because they’ll need to stop the check or get it back before issuing another one.
So make that phone call today to avoid any hiccups down the road.
Find The Right Balance
At ERIE, we know that life is all about balance. It’s finding that sweet spot between your budget and getting the protection you need.
When it comes to the type of auto insurance you should have, rest easy that you don’t have to figure it out on your own. Contact your local ERIE agent today. They can help you run the numbers and determine what’s best for your unique financial situation.