Home and Auto Insurance in Florida

Car is Finally Paid Off – Should I Reduce My Car Insurance?

Should I cut my car insurance coverage now that I paid off my car?

This is a great question and a question we hear often. When you have a loan on your car, the lender requires that you carry Collision and Comprehensive coverage to protect their interest in the car. Basically what this does is provides monies to fix or replace your car if it is damaged from an accident, weather, or other covered situation.

But once the lender is no longer in the picture, is there any real value in continuing to carry these two coverages. The answer in nearly every case is yes, but here is how to determine the value and/or why you may consider keeping it.

There are four factors that should be considered in this decision:

  • Value of your vehicle
  • Cost of the insurance
  • Deductibles
  • Key coverages

Vehicle Value

First, you need to determine the value of your vehicle. As a good starting point, finding the Blue Book value will probably give you a pretty good number for these purposes. In this case, let’s assume the vehicle is worth $6,000

Cost of Car Insurance

Second, you need to confirm the cost of the coverage. You are ONLY focusing on the Collision and Comprehensive, so don’t get lost in the other coverages, which often times are the bulk of the total cost of a vehicle. In this case, let’s assume the Collsion premium is $65 for 6 months and the Comprehensive is $40.

Insurance Claim Deductibles

Third, you need to pay attention to the deductibles on your Collision and Comprehensive. This is important, as this is the amount that you pay first before the insurance company pays anything. In this case, let’s assume you have $500 deductibles on each coverage

Before we get to the fourth factor, let’s talk through our scenario so far. If the value is $6,000 and you have a $500 deductible, if your car were totaled, you’d receive an approximate payout of $5,500 ($6000 less the deductible). To have these coverages, you’d be paying $105 each 6 months, so $210 for a year. The question you’d want to ask yourself is this: Is $210 per year worth it to me to avoid losing $5,500 in value if my car is totaled. Here in Florida, this also includes situations where an uninsured motorist smashes into you and doesn’t have money to pay you (Uninsured Motorist in Florida does not fix cars). If it were me, I personally think I’d keep the coverage, as the cost is minimal compared to the value (especially knowing that there are plenty of distracted drivers with little or no insurance).

Important Insurance Coverages

In terms of the fourth factor, even if you decided to skip Collision, I’d still strongly suggest keeping Comprehensive. The reason is simple. While collision handles situations related to collisions (with other vehicles, property, etc.), Comprehensive covers other things that are even less within your control (weather, theft, vandalism, etc.). But even more importantly, in the state of Florida, if you have Comprehensive coverage on your vehicle, you have no deductible for any repairs or replacement of your front windshield.

Anyway, we hope this helps provide context to this topic, but let us know if you have questions or want to talk through your specific situation.

Joel Meek

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