If a Car is Paid Off, Should I Get Insurance?

November 15, 2017

If you have just paid off a long-standing car loan or paid cash for your car when you purchased it, deciding what to carry for insurance is an important decision. If you carry too little coverage, you might not be protected sufficiently in case of an accident. By carrying too much insurance or unnecessary insurance, you can spend more money than you would ever recoup in a claim.

Liability coverage pays for damage that you cause to another person’s vehicle as well as medical bills and other expenses for injured people in an accident that is your fault. It is the law in almost all states that you must purchase and maintain liability insurance when driving on a public way. While most states have a minimum required coverage, purchase enough liability insurance to protect your personal assets. This amount is often much higher than the minimum required by law.

Collision and Comprehensive:
Collision coverage pays for repairs to your vehicle if you are at fault in an accident involving another vehicle. Comprehensive coverage pays for damage to your vehicle for any reason other than an accident, such as fire or theft. These coverages will pay a limit of the value of the vehicle in a claim. To determine if this coverage is a good value, consider the price of the premium compared to the retail value of the vehicle. If you must pay $700 per year for collision coverage on a vehicle that has a value of $2,000, the coverage probably does not make financial sense. However, if you do not have the money to replace the vehicle in case of a loss, you may want to keep the coverage.

Other Coverages:
Rental car reimbursement pays for a car rental if your vehicle is disabled due to an accident. These coverages generally have a daily limit as well as a maximum number of days that they will pay for. Towing and roadside assistance coverage can be helpful if your vehicle breaks down. In many cases, this coverage will also provide lockout and tire-changing service as well. If your car is getting older, these coverages may make sense for you, but you may also be able to purchase similar, if not better, coverage from an auto club.

Other Considerations:
If you decide to carry collision and comprehensive insurance on your paid-off vehicle, you can control your premium expenses by increasing your deductible to a higher level, such as $1,000 or $2,000. This is the amount that you would pay before insurance begins paying any benefits. You may also want to carry full collision and comprehensive coverage if you rent cars often. With most insurance companies, your own insurance provides coverage for you when you rent a car, and you would not have to purchase extra coverage from the rental company or rely on a credit card’s rental insurance coverage.

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