Car insurance is one of those necessary evils that come along with driving a car. And the first few years of owning a new car are typically the most expensive regarding car-insurance costs.
However, after you pay off the car, it’s common for your premiums to go down. Part of this is because the car is aging and would be less of an expense should it be totaled. Another reason for the decrease is that after you pay it off, you have much more control over insurance-coverage options.
Most drivers finance cars, such that a lender holds a lien against it and you don’t own it until it’s paid off. Lenders also typically require you to have full insurance coverage, which includes comprehensive, to protect their investment.
However, after you’ve paid your car off and officially own it, you can lower or eliminate your premium costs by dropping collision and comprehensive coverage. While most U.S. states require drivers to abide by minimum liability amounts, your lender doesn’t have the say over your insurance policy after you’ve paid the car off.
As your car ages, it depreciates in value. And the most rapid depreciation occurs within the first few years. In fact, by the time you pay off your loan, your car may have lost 50 percent of its original value. This directly translates to lower insurance premiums because it will cost an insurance company less to compensate you for the car if something were to harm it.
The best way to keep car-insurance premiums manageable is to be a safe, accident-free driver, although this might not directly relate to paying off your car. Most traffic violations and accidents stay on your record between three and five years and drive up your premium.
The more you have, the more of a risk you are. You might pay off your car and adjust your policy and still pay a high premium if you don’t have a good driving record.
Paying off your financed vehicle is one way to help lower your car-insurance premiums but it’s not the only way. For those that either lease or are still years away from paying off their car loan, there are other means of reducing costs. For instance, many insurers offer discounts on your policy if you insure more than one asset with them.
Additionally, while it can be tempting to shop around for low car insurance rates, many companies offer customer-loyalty discounts that reward long-time customers with price cuts. Anti-theft technology and driving vehicles that score high in crash-test safety can also save you money.