Perhaps the most common monthly payment taken on by consumers is the car payment. It may be 60 months, 72 months, with no interest or a great deal of it, and may be on the newest, fastest vehicle on the lot, or a simple sedan that gets them to and from work. Whatever the terms, most people have found themselves paying out, year by year, the purchase price of their car. Once the joyous day has come and the car is finally paid off, however, many people forget to re-evaluate their car insurance policy. Often, consumers will be paying far more for car insurance than need be due to requirements from the bank or dealership, or will have coverage on their policy they no longer need. Knowing how to properly re-evaluate your car insurance is key after the car is finally paid off.
The first thing to consider when re-evaluating your insurance policy is the amount of coverage you currently have on your policy. Often, this will be far higher than state minimums. Typically, the bank, dealership, or other financial institution that carries the balance of the loan on your car will require a certain level of coverage so as to best protect what is effectively their investment in the event of a car insurance claim. After your car loan is paid off, give your insurance provider a call, and get a car insurance quote using the minimum required coverage for your state. This can result in a significant decrease in the monthly premium cost. If your car is older, you can consider removing collision insurance. It may not be useful for vehicles with significantly depreciated value, but again may have been required at the time of its purchase.
Second, consider getting rid of optional coverage that you may have agreed to at the time of your car purchase. The most common type of add-on coverage for new cars is what is known as “gap insurance,” and it covers the “gap” between the purchase price of the car and the price as soon as it leaves the lot. While standard insurance policies will cover the replacement cost of your car, it will often not cover the difference in price between what you actually paid and what the car is worth when it leaves the lot. A car driven for only two days and then crashed will already have lost 10-20% of its value, and without gap insurance the owner could be responsible for a significant payout
Once the term of a loan is over and the vehicle is entirely paid off, a re-evaluation of your car insurance situation can do wonders to help lower premiums and ensure you are getting the best coverage.
