Insurance Myth #2: I paid off my car loan - now I do not need 'full coverage'

Let’s get a few definitions together right out of the gate:

1.  Paid For:  Means you no longer owe a bank money for your vehicle

2.  Full Coverage:  Having comprehensive and collision coverage on your vehicle

Now that those are out of the way, hopefully we are all on the same page.  I hear this statement week in and week out at my agency.  Someone will call and say “hey Jason, I finally paid off my car so I need to drop the full coverage.”  My initial response is always, verbatim, “ALRIGHT!!!  Congratulations!  A paid for car is the best type, right???”. My second response is usually something along the lines of “Mr. or Mrs. Customer, could you afford to replace your car, out of pocket, if you were to wreck your car?”

Their response is generally, well, of course not!  And that is when I explain that just because you aren’t required by the bank to carry physical damage coverage (full coverage) on your vehicle, does NOT mean that you do not need that coverage.  So, here are a few simple rules of thumb that I use when helping my clients evaluate whether or not to keep or drop full coverage on their vehicle:

1.  Is your car paid off or do you owe a bank?  If yes, paid off, you can drop full coverage.  If it is still financed, you are required to keep full coverage.

2.  Can you, or do you want to, pay for the damage to your vehicle out of your pocket? Yes?  Drop full coverage.  No?  Keep it.

3.  Is your vehicle older than 10 years and worth less than $2,000?  If yes, would you fix that vehicle or scrap it if you were in a decent sized accident?  If you would repair it, keep full coverage.  If you would scrap it, drop the full coverage.

4.  Do you own more than one vehicle?  The reason I ask this one is because if you go and rent a vehicle, your car insurance probably automatically extends over your rented vehicle.  If you only own one vehicle and you have dropped the full coverage, then you have also dropped the full coverage on that rented vehicle.  Therefore, you must either buy the policy sold to you by the rental car company (YUCK!) or you take the risk that you do not damage their vehicle (YIKES!).  However, if you have multiple vehicles, the "best coverage" is what covers that rented vehicle and if you have full coverage on another vehicle on your policy, you may proceed into the waters of dropping full coverage on your old, less-than-valuable vehicle.

Hopefully this gives you a little insight into whether or not you should keep your full coverage.  As always, if you have additional questions, visit my website www.theJFagency.com or send me an email jason@theJFagency.com or call my agency at 678-807-6090 or leave your question in the comments!