Can Paying Off Your Car Decrease Your Car Insurance Rates
A lower car insurance rate can equal significant savings. This can sometimes be obtained through loyalty to a company, or simply because of the type of car driven. But can paying off a financed or leased vehicle also reduce the cost of insurance premiums?
Any financed vehicle is the property of the financier until such time as the entire price of the car has been paid off. This means that for a typical five-year term, a financed car belongs entirely to the bank or car dealership, despite the fact that the customer who bought the car is the one driving, servicing, and repairing it. This also means that the financing institution can specify what type of car insurance it wants on the vehicle, as well as the amount of coverage it needs to have. A consumer has no choice in this, and must provide the dealership or bank with whatever proof of insurance they require before being allowed to take the car off the lot.
Once the vehicle is paid off, however, it becomes the property of the client, and the insurance can be changed to suit their needs. Paying off a vehicle early can, therefore, be beneficial to a consumer. For example, if the vehicle is carrying a large amount of collision or underinsured motorist property damage coverage, it could be scaled back, resulting in a significant savings. As well, many clients who purchase a financed car will also purchase what is known as “gap insurance”, in order to cover the “gap” in actual versus black book car value should the car be severely damaged early in its life. If the vehicle is a write-off, the insurance company will often not pay out the full cost of the vehicle, even if it was just driven off of the lot, as a result of depreciation. The financing company will still want full payment for the car, however, and gap insurance will cover the difference between the balance owing and the money paid out by the insurance company in their basic policy.
Once the vehicle is entirely paid off, all of these “extra” types of insurance can be removed, resulting in a savings. It is worthwhile for an owner to obtain multiple car insurance quotes, as there may be better deals out there than the one provided by their current insurer. As with any car insurance quote, however, a client must be sure to contact the provider to directly to clarify exactly what services will be offered and to ensure that the policy meets state regulations. While it may take some searching for the best deal, paying off a financed car can result in lower insurance rates.
