If you no longer want to pay for full coverage auto insurance, you may not have a choice depending on whether or not you own the vehicle.
Can I Drop Full Coverage Auto Insurance?
If you’re still financing your vehicle, you’re required to maintain full coverage car insurance. This is a requirement of your auto lender, since they still technically own the vehicle until you’ve completely paid it off.
If you drop your car insurance when you’re still financing your vehicle, you’re going against your loan contract. Your lender could repossess your car, or add force-placed auto insurance and tack the price of it onto your monthly payment.
You can drop full coverage car insurance, if you want, when you’ve completed your auto loan. Once you own the vehicle, you can choose coverage that meets your needs, wallet, and state’s minimums. This often means just paying for personal liability and property damage (PLPD) insurance. PLPD is usually less expensive than full coverage, and it typically meets a state’s minimums.
Once you’re no longer financing your car, you can switch to PLPD coverage. However, if you’re in an accident and your vehicle isn’t worth that much, it’s likely to be totaled and PLPD won’t replace your car. Another good rule of thumb for auto insurance is that once your annual insurance premium is equal to 10% of your vehicle’s value, then it’s time to drop full coverage (unless you’re still financing).
However, if you’re worried about not having the fullest coverage on your car, then evaluate what your insurance company offers and what types of coverage are important to you. Just remember that if you’re still financing your vehicle, you must meet your state’s minimum insurance requirements, as well as your lender’s stipulations.
Car Insurance Coverage Options
If you’ve ever tried to read through an insurance menu, it’s easy to get overwhelmed with all the jargon and the multitude of options. It’s a lot to sort through, but we’ve gathered a list of common insurance coverages to help you get a better idea of what you may be interested in.
Some general components of auto insurance policies include:
Liability coverage – Can cover bodily injury and property damage for you and other people when you're at fault in an accident. Required in nearly every state.- Uninsured and underinsured motorist coverage – If you’re hit by another driver who didn’t have car insurance, this may help pay for your medical bills.
- Comprehensive coverage – Can cover damage caused by acts of god or perils, such as hail, fire, theft, vandalism, or a single-vehicle accident not involving another driver. This coverage may pay to repair the damage up to the car’s value, and carries a deductible.
- Collision coverage – If you're in an accident with another vehicle, no matter who's at fault, this may pay to repair or replace your car up to its value. Also has a deductible.
- Medical payments coverage – May help pay for medical bills in the event of an accident.
- Personal injury protection – Also called PIP, available in some states, and it may pay for some medical bills.
While there are typically lots of coverage options, full coverage is almost always a combination of liability, collision, and comprehensive coverage. The cost of these coverage types varies greatly depending on your personal information, your vehicle, the state you live in, and your driving record.
Some Optional Auto Insurance Coverage
There are many other types of optional insurance coverage for people in unique situations. If you have a classic car, for example, there’s coverage for that!
Some optional coverage that drivers can purchase include:
- GAP insurance – If you’re in an accident, GAP insurance covers the gap between what you owe on your auto loan and your vehicle's value. It's generally recommended for borrowers with brand-new cars that have a higher risk of being in a negative equity position.
- Towing insurance – This type of coverage can cover the cost of a tow.
- Classic car coverage – These policies may offer more reimbursement if your classic car is damaged.
Your insurance company likely has more options available, so don’t be afraid to ask questions and see what they can offer – GAP insurance may only cost around $20 to $40 for an entire year. Evaluate what your needs are so you can choose the best coverage for your situation.
There are many insurance companies out there, so take your time and shop for auto insurance rather frequently, since you don’t have to stick with the same insurance company forever. As long as your coverage never lapses and you notify your lender, you can switch insurance companies whenever you’d like.
Car Shopping?
When you finance a vehicle, the dealership is going to require proof of auto insurance before you can drive that car off the lot. But if you have less than perfect credit, it can be hard to get approved for auto financing. Luckily, we can help with that!
Here at Auto Credit Express, we’ve cultivated a network of dealers that are signed up with bad credit car lenders. To get matched to a dealership in your area, fill out our free auto loan request form, and we’ll look for the connections you need to get into your next vehicle.
