Do I need full coverage insurance on my used car?

Dropping full coverage in favor of only liability can save car owners money on their monthly premium. However, there are several factors that should be considered before the auto insurance policy is reduced.

 

You should examine the benefits and drawbacks of reducing your coverage, and you should shop around for full coverage auto insurance from multiple providers.

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Do you own your car?

Before you can consider reducing your car insurance policy, you need to own your car. If you still owe money to a financial institution, that company may require that you keep full coverage.

This is because banks and other lending institutions want to protect their investment in the event that you stop making your car payments.

If the car is damaged, the financial institution may want you to repair the car to its pre-accident condition. If you default on your car loan, the company can recoup as much money as possible.

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Full Coverage Insurance

The term full coverage auto insurance refers to a car insurance policy that includes comprehensive, collision and liability.

This means that your car will be repaired or replaced minus your deductible under several different types of conditions:

• Car Accident
• Hitting an Animal
• Road Damage
• Vandalism
• Weather Damage

Comprehensive Insurance

Comprehensive insurance covers everything that isn’t a car accident.

For instance, if someone vandalizes your car by running a key down your side panels, the comprehensive part of your car insurance would cover the damage.

Without comprehensive coverage, you would be responsible for 100 percent of the repairs out of your own household budget.

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Collision Insurance

Collision insurance protects you in the event that you are in a car accident and the accident was deemed your fault or no fault.

It also protects you if you hit an object like a pole or your garage door.

Read more: If I hit a pole, will insurance cover it?

In this instance, the insurance company would pay the repairs to your vehicle minus your deductible.

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Liability Insurance

Liability insurance protects the other driver and their car in the event that you are involved in an accident and the accident was determined to be your fault.

Basic liability coverage will not cover this type of damage.

It does not repair your car or pay any of your medical expenses if you are injured in the accident.

Read more:

• Do I need to have insurance before I buy a used car?
• When is full coverage car insurance worth it?

State Minimum Insurance Requirements

Before you drop your full coverage, it is important to understand that all states require a minimum amount of car insurance.

Car owners cannot drive around without car insurance.

If they do, they could be subjected to fines and the loss of their driver’s license.

Dropping Full Coverage

If you have paid your car off or purchased it outright in cash, you can absolutely drop your full coverage auto insurance in favor of liability insurance and save money on your monthly premium.

However, you should consider how you will pay for the repairs or replacement of your car in the event that it is damaged via an accident, severe weather, fire or vandalism.

Most car owners do not have enough money in their savings accounts to repair or replace their cars.

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Alternatives to Reducing Car Insurance

If you are still debating on whether or not to reduce your car insurance coverage, consider some alternative options, including making sure you are getting all the applicable insurance discounts.

These discounts usually include:

• Certain Car Safety Features
• Good Student
• Multi-Line
• Safe Driver

Raising Your Deductible

Raising your deductible can lower your monthly car insurance premiums.

This is especially true if you have a car insurance policy with an extremely low deductible, like $100 or less.

Raising your deductible to an amount you can still afford can lessen the stress on your monthly budget while still providing you with adequate car insurance.

Another alternative to reducing your coverage is to shop around for full coverage auto insurance from a variety of insurance companies.

Monthly premiums between insurance carriers can vary greatly.

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