Does Car Insurance Lower If Your Car Is Paid OFF

Someone tells you that owning your car will lower your auto insurance premium or even get you cheap car insurance? Check below to know whether it is true.


Owning your car outright is a huge milestone as you can shake off the burden of monthly payment and you have the vehicle under your name. Paying off your car loan can bring several benefits and it also raises the question whether one’s auto insurance goes down if he or she owns the vehicle free-and-clear. Here we will explain to you why owning your car does not have much of a direct impact on yourauto insurance and what you should do to gain some benefits:

Why simply owning the car does not bring down the premium 

The bad news here is insurers do not calculate one’s premium based on whether he or she owns the vehicle; they use the following factors to determine one’s insurance rate:

Your driving record: This plays a vital role in deciding your quotes. If you have any violations or have filed an auto insurance claim, the chance of getting a low premium is rather slim. So slow down and do not drink before you drive to maintain a clean record. It will go a long way toward a cheap car insurance quote.

Types of vehicle: This factor is composed of the value of your car and the repairing or replacing expenses. It is common sense to assume that a cheap car means a cheap insurance premium, but the reality is more complicated than that. Your best bet is to check your car with a car insurance group checker. You just need to enter a few basic information and the machine will do the rest for you.

Your neighborhood: Expect to see your premium skyrockets if you live in a high-crime area. The logic here is your car is more likely to be stolen or damaged if you base yourself in such neighborhood.

Your annual mileage: The more you drive, the more chances of getting into accidents and your quote will, therefore, increase.

In conclusion, the only thing insurers care about is how likely your car to be stolen or damaged and how much it costs to restore or replace it. Paying off your car does not prove that you are a careful driver nor change the expenses in the event of a loss; therefore, it has little to do with your car insurance rate.

Why you may see your insurance goes down as you pay off your car

As explained above, owning a car does not lower your insurance quote. However, by the time you do, your premium is likely to drop. Here is why:

Depreciation

By the time you pay off your car, the premium may have decreased, making some people think that there is a correlation between car ownership and auto insurance. The truth is you own the car or not does not affect the rate.

The value of your car tends to drop significantly after the first few years in use. Insurers will charge you less if the vehicle is worth less because they do not have to pay you much to compensate you for the car; therefore, lower your premium.

Years of experience

Your age has little effect on how good you are as a driver but your experience does. As you spend more time driving, your capacity to handle unexpected situations on the road tends to be enhanced, so you are less likely get yourself into road traffic accidents than people who are newbies.

What you can do

Now you own your car, you will have more coverage options to consider. Look at things like collision or comprehensive coverage. While your bank still owns the vehicle, they do not want to take any chance on it when you have not yet paid it off, so they will require these coverages. Now you have had full control and ownership of the car, it is up to you to decrease or even drop them. Think about what you can handle by yourself in anemergency. If the risk is worth it, feel free to leave the extras out and your premium will be lower by a significant amount.

However, think about the following things before you decide whether to contact your insurer and drop the two coverages:
  • Figure out how much you pay for each coverage: You should have this information before deciding what your deductibles are. 
  • What you would give up: If you decide to drop them, you would be on your own if you get into an accident that is your fault. Even if you are not the one who causes the unfortunate incident, you still at risk of taking theloss. What if the at-fault party does not pay you enough to repair your vehicle? What if he or she hits more than one car? 
  • Find out how much of a loss you could handle yourself without falling into financial difficulty: Come up with a number and compare it with the cost of the coverage. Could you pay that sum of money to repair or replace your car out of your pocket?
  • Think about your state of mind: Can you sleep tight at night knowing that you would have to pay for the loss yourself? 
  • Remove your lienholder: it is a good idea to let your insurer know about the loan paid off. It is not like your compensation would go to your bank if you do not but it will take insurer some time to find out who they should pay for. 

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