No, you do not need full coverage on a paid off car. Full coverage car insurance is only necessary when a car is not paid off yet and the lender requires full coverage, as there isn’t a legal requirement to carry full coverage anywhere in the United States. Insured drivers always have the option to add full coverage to their paid off car if they want to, though, and it can be a good idea.
For example, you should have full coverage on a paid off car if you want to make sure your insurance will pay for the car to be repaired or replaced, especially if the unexpected expense would be a financial hardship. Without the collision and comprehensive insurance that’s usually part of full coverage, you’ll have to pay for damage to your vehicle yourself in the event of an accident, theft or other incident.
You should also take the age, mileage, and replacement cost of your vehicle into consideration when debating whether or not you need full coverage on a paid off car. If you own an older car, full coverage might not make sense financially because the vehicle isn’t worth as much anymore.
Ultimately, there’s no universally right or wrong answer when it comes to whether or not you need full coverage on a paid off car. Your decision should depend on several factors, including your personal financial situation, your driving habits, and the vehicle itself. Talk to your insurance provider to discuss what would be best for you.
This answer was first published on 12/03/20. For the most current information about a financial product, you should always check and confirm accuracy with the offering financial institution. Editorial and user-generated content is not provided, reviewed or endorsed by any company.
FAQs
Once the loan is paid off and the lienholder is removed, you're free to explore other coverage options. You most likely won't need as much coverage as you had when you were locked into a loan or lease. However, you'll still need to carry some coverage since state car insurance requirements necessitate some form of it.
Should I keep full coverage after my car is paid off? ›
Once you've paid your vehicle off, you're no longer subject to any insurance requirements other than your state's minimums. If you want to drop some types of coverage to save money, that's up to you. Either way, have your insurer remove the lender as a lienholder on your policy.
At what point is full coverage not worth it? ›
Between 10 and 15 years after a vehicle's model year, full coverage is a poor investment. While the cost of full coverage by itself likely won't be more than what a car is worth, the cost of insurance is more likely to be higher than the value of the car after an accident.
What is the best coverage for a paid-off car? ›
So, you'll want to maintain physical protection (your collision and comprehensive coverage) to protect it — these coverages are recommended as long your vehicle retains a worth of at least $4,000.
Is it worth it to have full coverage on an old car? ›
It's usually worth dropping full coverage on an older car if its value is less than a few thousand dollars, as long as there's no loan on it. The more your car depreciates, the less you'll get from the insurance company after an accident or theft.
Should I change my car insurance after I pay off my car? ›
Once the loan is paid off and the lienholder is removed, you're free to explore other coverage options. You most likely won't need as much coverage as you had when you were locked into a loan or lease.
Should I tell my insurance that my car is paid off? ›
Paying off your car is a huge accomplishment. 1. Yes, let your car insurance company know. It is a good idea to notify your car insurance company of the loan payoff so that you can remove the lienholder from your policy.
What are the disadvantages of having full coverage car insurance? ›
Full coverage car insurance is more expensive than a liability only policy. Another downside is that your premiums may increase after filing claims after a covered event. You can reduce costs by figuring out how much coverage you actually need.
At what point does collision insurance stop being beneficial? ›
Your vehicle's value is less than a few thousand dollars: If your car holds minimal value, collision coverage may not be worth carrying. This is especially true when a large car insurance deductible is involved.
Is it better to have collision or comprehensive? ›
Collision coverage pays for damages to your vehicle that are the result of a collision with another vehicle or a road hazard. Comprehensive coverage pays for other damages to your vehicle such as theft, vandalism, animal damage, falling tree branches and other environmental damage.
Simply paying off your car won't lower your premiums, but getting rid of some of the required coverage might. For example, you may no longer need gap insurance, which pays the difference between your car's loan and its decreased value if your car is totaled and is required by some lenders when financing.
Is it better to keep a paid off car? ›
Free up money for other expenses
Paying off your car loan is a big opportunity to progress on other financial goals. If you keep the car you have and don't take out another loan, you can put that money toward vacation savings, retirement funds or other debt.
Is it better to have a higher or lower deductible for car insurance? ›
When you're choosing a deductible, keep in mind that you may be more or less comfortable with higher out-of-pocket costs vs monthly costs. A high deductible will lower your overall insurance rate, however it will increase your out-of-pocket costs if you file a claim.
Should you keep full coverage on a paid-off car? ›
If you have a new model car, you probably want to keep full coverage even if you bought it without a loan. Having appropriate insurance protects your investment in your vehicle and prevents a large out-of-pocket expense if an accident happens. Some older cars still have a fair amount of value.
What year of car should have full coverage? ›
You should hold on to full-coverage auto insurance until your annual premium meets or exceeds the estimated payout if your car needs to be repaired or replaced. If your car is five or six years old, the payout for replacement probably isn't worth what you pay in premiums.
Should you keep old car insurance? ›
You should keep your car insurance documents and policies as long as your policy is active and until all open claims are resolved. Most car insurance policies last six months to one year, and if you have no open claims, you can discard your documents when the policy ends and you get a new one.
At what point does collision insurance stop being beneficial for a consumer? ›
Collision insurance stops being beneficial for a consumer when the cost of the premium becomes greater than the value of the car. This is because the consumer would be paying more for the insurance than the car is worth, which is not a cost-effective decision.
Does having your car paid off make insurance cheaper? ›
Simply paying off your car won't lower your premiums, but getting rid of some of the required coverage might. For example, you may no longer need gap insurance, which pays the difference between your car's loan and its decreased value if your car is totaled and is required by some lenders when financing.
What does it mean when your policy is paid in full car insurance? ›
A paid-in-full discount is a decrease in your car insurance for paying all of your car insurance upfront. This means paying for at least six or 12 months of insurance all at once instead of paying by the month or quarter. Most drivers pay for car insurance on a monthly basis.
How much does car insurance go down after 1 year no claims? ›
In many cases, your insurance will go down by 5-20% in the first year of no claim, depending on your insurer. After the first year, this discount increases each year, usually by 5%, if you don't make a claim. But it only increases up to a maximum discount, usually 50-60%, and a number of years — usually 5-6 years.
