when can i cancel full coverage with a loan on the car in Oregon?

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I was told I could do just liability when I owe less then $2500 on the car. however, my insurance agent is asking me to find proof of the law.

Asked April 24, 2017

1 Answer


The first thing you need to consider about whether or not you can/should cancel car insurance is if you are even able to. In short, you are not able to cancel physical damage car insurance on a vehicle when you still have an amount outstanding on the loan. The next question you need to verify is whether or not you would even want to, and then that gets into more specific car insurance information.

However, despite the background and the history on the insurance field, the long story short version is that you cannot cancel physical damage coverage if it is outlined in your loan agreement that you will carry it. Typically the loans are structured so you cannot do this. The only other thing you can do to try to get around this would be to double check your loan contract, or try to refinance the loan itself with a lender who will allow you to borrow money without being covered.

When it comes to having car insurance, there are two components. The first is the liability coverage, which you always need. From that point of view you would never cancel full" coverage. The second part is the physical damage portion. It sounds like what you want to do is to cancel that, but why would you want to?

Assuming you are in a general scenario, the physical damage auto insurance will provide coverage to replace or repair your car. However, you also need to consider the fact that by forgoing insurance, you are still legally responsible for the debt as well as not having any car to show for it. Hypothetically if you do not have it, then the auto lender would be on the hook for significant risk. Pretend that you still owe $2,500 on the vehicle in payments and then got into an accident. If the care was totaled, then why would you continue to pay on something that doesn't have value? You could walk away from the payments all while destroying your credit and borrowing ability for your next car. Meanwhile, the lender of your auto loan would potentially be out $2,500 dollars. The only collateral that they have is the now-totaled car, and that is by definition worthless.

At the end of the day, you are looking on when you could drop your physical damage coverage. However, you need to consider why you would want to. Even if you had a high deductible like a $500 or a $1,000 dollar deductible, you would at least be able to control how much it will cost you to get back on the road in the event of an accident. Plus, as you raise your deductible, your rates will drop. I would ask your agent for ways to save money, but I wouldn't take on thousands of dollars of risk in order to do so.""

Answered April 25, 2017 by ClaimsAdjuster

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