What You Need To Know About Changing Your Auto Insurance To Liability Only
If it is time to renew your auto insurance policy or if you are shopping for a new policy, you may wonder if you need to have full coverage or liability only insurance for your vehicle. Full coverage includes collision and comprehensive insurance that protects you in a number of different situations, including auto accidents that are your fault and weather-related damage. Liability only insurance will only pay for damages that you cause to other individuals; it will not pay for any damage to your own vehicle. If you are considering changing your policy from full coverage to liability only, here is what you need to know.
Lenders Require Full Coverage Auto Insurance
If you have any type of loan or lien against your vehicle, it is likely that your lender requires you to keep full coverage on your vehicle until it is paid off. Do not even consider dropping your coverage to liability only until you own the vehicle free and clear. Without full coverage insurance, you will be responsible for paying off the balance of your loan, even if an accident leaves your car totaled.
You Need to Take Into Account Your Deductible and Insurance Premium When Deciding Whether or Not to Make the Switch
One of the top reasons that many drivers choose to change their auto insurance policies from full coverage to liability only is to save money on insurance expenses. However, do not let the promise of immediate savings cause you to make a foolish decision. Before making the switch, you need to make sure you can afford to replace your car if something happens to it. Check out a scenario where dropping full coverage insurance might be justifiable.
Assume that your car is worth $4,000. You have a deductible of $1,000. The cost for liability only coverage is $500 a year, and the cost for full coverage insurance is $1,000 a year. With full coverage, the most you would receive for your car is $3,000 (the value of your car less your deductible). If you take into account your annual premium savings and the price of your deductible, you will have $1,500 to put towards a new car in the first year that you drop full coverage insurance. This assumption requires you to save the difference in your premiums.
Whether or not you decide to make the switch ultimately depends on your personal comfort level. For some, the $500 savings is reason to make the switch, especially if they have access to affordable low-interest loans when it is time to replace their vehicles.
If you do not have access to credit or know that you would just spend your premium savings, you may decide to keep full coverage until you are in a better spot financially. For more information, contact an insurance company like Nelson Insurance Agency.