Does Your Car Insurance Go Down After You Own the Car?

The first few years of car ownership are generally the most expensive in terms of insurance. This is particularly true if you finance your vehicle, as most Americans do. Once you have paid off your car loan, your insurance premiums are likely to drop, in some cases dramatically. At the very least, you will have more control over how much your insurance costs after you pay off your loan.

TL;DR (Too Long; Didn't Read)

Once you own your car free and clear, you'll see a drop in your insurance rates.

Lienholder Insurance Requirements

Whenever you pay for a car over time, the finance company you make payments to holds a lien against your car. Essentially, this means you don't own your car until you pay off your loan. To protect the financial interest it has in the car, a finance company will usually require you to provide a certain minimum level of comprehensive and collision insurance for the car.

In many cases, you cannot even get car financing without providing this insurance. As a result, the insurance premiums for your new car can tend to run on the high side. Once you have paid off your loan, the lien holder no longer has any say in your insurance coverage. If you want to drop your comprehensive and collision coverage, keeping only your liability coverage, you are free to do so. This can result in lower car insurance rates.

Depreciation Happens Rapidly

Over time, the value of a car tends to depreciate. In most cases, a car's value drops more quickly in the first few years. By the time you pay off your car loan, your car may have lost more than half its value. Insurance premiums for older cars tend to be lower, since it would cost an insurance company less to pay off the value of your vehicle if it's stolen or damaged.

Check with your insurance company after settling the lien on your car. You may find it's worth less and cheaper to insure than it was when you first purchased it. Your insurance company won't automatically adjust your insurance premiums as your car depreciates, so it's important to check in with them once in awhile and make sure you're not paying for more coverage than your car is worth.

Lowering Limits

You don't have to drop your comprehensive and collision insurance coverage completely to lower your insurance rates. Lowering the limits on your policy will drop your premiums as well. Finance companies tend to require high insurance limits since they don't have to pay for the coverage and want to be fully protected in the event of an accident. Once you own the car outright, you can adjust your limits lower if you think it would make more economic sense.

Driving Record

Although the price of insurance generally trends lower after you own a car, a poor driving record could still drive rates higher. Insurers generally raise rates after a collision, sometimes regardless of fault. Any type of serious moving violation will usually affect your rates for a full three years after the incident. In the case of a DUI, your rates could skyrocket or even cause your insurer to drop your coverage.

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