TUESDAY, OCTOBER 5, 2021
We all know how exciting it can be to pay off your auto loan. After all, you probably took out this loan several years ago when you bought the vehicle and have been paying it off over time. It’s a debt that most people feel relieved to get rid of.
Still, just because your loan went away, your auto insurance obligations didn’t go away. After all, your vehicle still has value attached, and that’s value you that you don’t want to lose just because of a car wreck, vehicle theft or other accident.
Plus, auto insurance is still mandatory for most drivers, regardless of whether they owe money on their car. That’s why you should never cancel your auto policy just because you have paid off your car.
Why do I need auto insurance when the car is financed?
If you have a loan on your vehicle, then you are not the only one who has an investment in it. Your bank provided the money for the vehicle, and they expect you to repay that value (plus interest).
Therefore, if something happens to your car, then you put yourself at risk of having a destroyed vehicle with financing still attached to it, and your lender is not going to like that. As a result, they will require you to carry physical damage insurance on the vehicle. It will help you repair and maintain your vehicle, while ultimately allowing you to maintain your loan obligations.
Usually, you must carry:
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Collision insurance: Coverage will pay for damage following a vehicle wreck.
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Comprehensive insurance: Coverage pays for damage to your vehicle when that damage results from anything other than a wreck, such as a vehicle fire, theft, vandalism or other loss.
Depending on your lender’s requirement, these requirements might vary. However, the thing to remember is that you usually must ask your agent to add them to your plan. Most auto insurance plans don’t automatically offer this coverage unless you request it.
Keeping Coverage After You Pay Off Your Car
Even after you pay off the loan on the car, that doesn’t mean the vehicle is not worth any money. Therefore, keeping physical damage insurance on your policy can still help you repair the vehicle. Ultimately, this will make it easier for you to fix the car, maintain its resale value, and ultimately help you continue to use your car for as long as you want.
Still, there might come a time when the cost of your plan will outweigh the compensation that it will provide for damage to a significantly older vehicle. At this time, you might be justified in cancelling your physical damage coverage. However, you should only do so if you can afford to pay for accident repairs yourself. Ultimately, these benefits provide financial security in ways that your personal accounts simply cannot—and should not have to—following a challenging loss.
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