When you pay off your vehicle, is it best to continue full coverage or liability?
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Asked July 6, 2011
Whether or not to continue full coverage after your car is paid off depends more on the value of the vehicle than any other factor. For instance, if you have a car with a $50,000 book value, full coverage will be a huge benefit, where a car with a book value of $8000 may not really be worth the additional expense of full coverage.
Typically, the term full coverage refers to a combination of both comprehensive coverage and collision coverage, each of which can be purchased separately. Collision coverage includes damages to the vehicle caused by, as the name implies, a direct collision with another car or object. Comprehensive coverage is meant to protect against damages by animals, falling trees, or such things as vandalism. Additionally, comprehensive coverage includes theft protection and property loss attributed to burglary. Collision insurance may not be especially helpful for an older car, but comprehensive insurance will protect your stereo or other after market add-ons, regardless of the actual book value of the vehicle itself.
One popular method for protecting your investment is to drop the collision portion of the vehicle while retaining the comprehensive coverage. This results in a lower insurance premium without sacrificing the financial security of coverage for the vehicle contents. Another option is to continue with a full coverage policy but to raise your deductibles. This method protects the vehicle more fully and lowers your insurance premiums by transferring more of the cost responsibility to yourself in the form of paying a greater out of pocket amount before the insurance claim becomes effective.
Answered July 6, 2011 by Anonymous