March 16, 2021

Evaluating Your Coverage After Your Vehicle Is Paid Off

Paying off a vehicle loan is a big moment in anyone’s life; the prospect of lower total monthly bills and the assurance of ownership over your vehicle brings a sense of security. Many people think that the final payment is the last step in paying off the car, but there are other things that should be considered. Along with that final payment, it is also a good time for evaluating car insurance coverage to ensure that the appropriate levels are being provided and that you aren’t overpaying for the coverage that you do need. The individual evaluation of insurance policies will differ from case to case, but for each policy, there are basic coverage options that should be reviewed.

When you carry a loan on a vehicle, the bank generally has very specific requirements about the type of coverage that you have to obtain in order for them to give you the money for the car. In most cases, one of the requirements is that the price of the car has to be covered so that they can recoup any outstanding payment in case the car is irreparably damaged in an accident. Once the car is paid off, though, that level of coverage may no longer be necessary for your lifestyle. A frank evaluation of the true replacement value of a car or truck can help you decide if you need to retain a full coverage policy for your car or if you can reduce the coverage to a less expensive model. If your loan was on an older car that would be inexpensive to replace, it might make more sense to put the difference between full coverage and a lower level of coverage into a bank account and let it build over time, and to use that if replacing your car becomes necessary. Many banks also require specific levels of liability insurance that may be beyond what you think is necessary given your driving record or other factors. On the other hand, you may want to increase the liability coverage for your vehicle if you are now saving money by eliminating your car loan; either way, evaluating car insurance options after paying off a vehicle can help you to adjust your insurance to your needs.

Taking full ownership of a car from a lender is a fulfilling feeling, but it should also be a time for reviewing the overall costs of owning that particular vehicle. The payment itself may be going away, but the insurance levels for the car should be reviewed in case they can be adjusted in order to save you more money, or alternately to provide more coverage depending on your situation.