When you own a vehicle, buying car insurance is a must, but the type of coverage that you buy is up to you. State laws only require you to purchase liability insurance, but many other consumers opt for full coverage benefits. Although full coverage benefits can be attractive, they are not always necessary. In some situations, you may not need to go with full coverage and can instead use liability only.
It is important to know what type of coverage you need. Once you know what qualifications make a certain coverage the best for you, then you can compare auto insurance rates for that specific coverage and save. Enter your ZIP code into our FREE auto insurance comparison tool to get quotes now! Here are some situations where liability-only policies make sense:
- Car is paid off
- Value of car is low
- Low car usage
- Deductible is already high
Paid-Off Vehicle
Many people who buy a new vehicle use auto loans to finance the purchase. When you have a loan on a car, the lender will require you to keep comprehensive coverage auto insurance on the vehicle.
This typically means that you have to keep collision and also comprehensive coverage in addition to liability. This way, if you are in a wreck with the car, the insurance company will pay to repair or replace it so that the lender is protected.
Most auto loans last about five years. After you pay off your loan, you are no longer technically required to have full coverage auto insurance. The lender is no longer at risk and you are the sole owner of the vehicle.
At that time, you can make your auto insurance policy the cheapest, reducing it to liability coverage only so that you are still protected if you cause a wreck. This will significantly reduce your auto insurance premiums and will allow you to save some money. When you take this step, just make sure that you understand the risk you are taking. If your car is totaled, the insurance company will not pay you to repair or replace it and this burden will be yours alone.
Low Car Value
You may also want to consider lowering your auto insurance coverage to liability-only when the value of your car is very low. Most vehicles are considered appreciating assets because they lose value over time.
If your car is only worth $2,000 or $3,000 and you have a $1,000 deductible on your car, it may not make sense to carry insurance. If you wrecked your car, the insurance company would only provide you with a very small amount of money after your deductible was paid.
Once the value of your car gets below a certain point, no longer makes sense to have full coverage auto insurance. Because of this, many people with older cars only have liability coverage. There is not a specific age or value that works for everyone when making this determination. You have to look at your own financial situation and figure out when it makes sense to cut collision and comprehensive.
Low Car Usage
If you rarely use your vehicle, it may be to your advantage to cut your full coverage auto insurance. For example, if you have a truck that you only use to drive around your farm, it may not make sense to have full coverage on it. Since you only put a few miles on the vehicle and seldom drive it on public roads, the odds of having a collision are very low.
If the value of your car has declined and you rarely use it, it may be a good time to eliminate your full coverage insurance. When you drive your car very rarely, paying extra money every month for unnecessary auto insurance does not make financial sense.
Deductible Considerations
When you are trying to make a decision of whether to cancel your full coverage auto insurance, you should also look at your deductible. The deductible is the amount of money that you pay out-of-pocket when you have to file a claim with the insurance company. If you are considering cutting full coverage insurance, it may be to your advantage to simply increase your auto deductible instead.
Because of this, when you raise your deductible, the insurance company will lower your car insurance premiums. This means that you may want to consider raising your deductible so that your premiums can be lowered.
If you have a very low deductible, it may not make financial sense to completely cancel your full coverage auto insurance. Instead, you may want to keep the full coverage auto insurance but just raise the deductible so that your premiums can be decreased. This is especially useful when your vehicle still has a decent value but it is paid off. Just make sure that the deductible is not so high that you could not afford to pay it if you had a wreck. Then after the value of your vehicle falls to a level that is close to your deductible, you can drop the full coverage insurance and go with only liability.
Compare Prices
If you?re in the process of trying to save money on your auto insurance, cutting full coverage is only one way that you could accomplish this goal. In this situation, it also pays to compare your auto coverage with other companies. Even if you shopped around before you bought your initial policy, rates may have changed while you were with your current insurance company. Use our FREE auto insurance comparison tool by entering your ZIP code to save money!
Shopping around for auto insurance quotes online doesn?t have to be difficult. With the numerous insurance comparison sites available online, you can get quotes from most of the major insurance companies within a few minutes. Some companies may offer liability insurance cheaper than others even if their full coverage rates are about the same. Because of this, it makes sense to shop around once you make the decision to drop full coverage and buy only a liability policy.
When you are shopping around, you also need to remember that customer service is still important. Don?t pick a company just because it?s the cheapest. Once you feel comfortable with a company and the quote it is offering, pull the trigger and start saving some money on your coverage. Start comparing right now by entering your ZIP code into our FREE auto insurance comparison tool.
Source: http://www.autoinsurance.org/when-to-avoid-full-auto-insurance-coverage/
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