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Car insurance after paying off your loan

Paying off your loan could lower your car insurance rates if you need less coverage.

Beyond having no car payment, paying off your loan could save you money on your car insurance — rates for a paid-off car are often much lower than a financed car. As you re-evaluate your auto policy, you may want to look at how much coverage you need and make sure you’re getting the best deal from the right insurance company.

How car insurance is affected after paying off your car loan

After paying off a car loan, you’ll need to let your know to take the lender’s name off the policy. Then, you can discuss what changes you want to make so that your policy can meet your needs now.

Factors that could affect your car insurance after paying off your loan:

  • Not meeting loan requirements. Your lender probably required you to keep full coverage, which includes comprehensive and collision. Now that your lender isn’t in the picture, consider dropping any options you no longer need.
  • Dropping gap insurance. If you do drop gap insurance, you might replace it with roadside assistance if your car’s warranty has run out.
  • Depreciated car value. You can update your car’s details on the policy, including its year and mileage. If its value has lowered, your insurance premiums could be lower and you may not need the same liability limits.
  • Other life changes. Your age, marital or homeowner status may lower your rates or help you qualify for discounts.

Do car insurance rates go down after I pay off my loan?

Not necessarily. You need to go through your policy to see what coverage you no longer need. For example, your lender may have required your policy to have a loan payoff rider, which you can drop now that you don’t have a loan.

Should I keep full coverage on a paid-off car?

Your decision to keep full coverage depends on what your car is worth and how much coverage you’re comfortable with. Even though you’re no longer under your lender’s contract, you may want full coverage to protect your car as an asset.

Keeping the comprehensive and collision coverage means that you won’t pay for damage to your car if you cause an accident.

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Get cheap car insurance after paying off your loan

Ask your agent about the following ways to save on your insurance premiums:

  • Increase your deductible. Now that you don’t have a car payment, you may be able to set aside money for a few months to save up for a larger deductible that would lower your premium.
  • Ask for a discount. This is a great time to sift through the discounts your insurance company offers and see if any of them apply to you.
  • Evaluate your coverage. Depending on the age and value of your car, it might be time to decide if you still need some of the higher-priced full coverage options you wanted when your car was newer, such as new car replacement.
  • Shop around. Compare your current company’s offer with quotes from other insurance providers to see if you could be getting a better deal elsewhere.

What to watch out for

Before you celebrate your lower insurance premiums, make sure you know what to watch out for as you renegotiate your coverage.

  • State minimum coverage. You may be tempted to drop all coverage except for what your state requires. But doing so could leave you with low liability limits and no coverage for your own car’s damage after a collision or noncollision event.
  • Poor driving record. If you’ve gotten tickets or points against your license, you could see your premiums go higher instead of lower when your insurance company does a check.

Can I put off telling my insurance that my car is paid off?

Technically, yes. You could delay telling your insurer about paying off your loan if you need extra time to remove points from your license or for a past accident or violation to drop from your record. A poor driving record probably will raise your insurance premiums.

However, any insurance claim payout will go to the lender first and then to you, which could cause a delay. And your insurance company may find out about your record when it’s time to renew your policy.

Bottom line

Once you’ve taken a minute to celebrate the accomplishment of paying off an auto loan, it’s time to call your insurance agent to see where you can save.

But before you update your coverage with your existing provider, compare your car insurance policy with what other insurers have to offer. That way, you’ll be sure you’re getting the right coverage for you at the best price.

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