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Is Insurance Cheaper If You Own the Car?

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Reviewed byJoel Ohman
Founder, CFP®

UPDATED: Mar 13, 2020

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Insurance Q&A: “Is insurance cheaper if you own the car?”

It certainly can be cheaper, but the answer is really up to you. Auto insurance policies offer multiple coverage types.

Typically, you are required to purchase liability car insurance coverage no matter what…if you want to “stay legal.”

The second, potentially optional, coverage type is physical damage coverage. Physical damage coverage can be further broken down to collision and comprehensive coverage.

[Collision vs. comprehensive coverage]

And having both liability and physical damage coverage is referred to as “full coverage.”

Whether or not you obtain physical damage coverage for your vehicle is where the rubber meets the road on this post.

Opting for no physical damage coverage will certainly save you money on your auto insurance premium.

But that doesn’t necessarily mean you will save money in the long run…more on that in a minute.

When It’s NOT Optional

The fact is, if you financed or leased your car, you do not have the option to purchase physical damage coverage.

Your lender or lienholder will REQUIRE this coverage for the term of your loan or lease.

This is to protect their financial interest in your vehicle. This means in the event of a property loss to the vehicle, they would receive their money first and the leftovers, if any, would go to you.

Tip: You may find it beneficial to purchase gap coverage with a loan or lease as well. This can be tacked on to most insurance policies or added to the finance/lease agreement for a relatively small amount of money.

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When It Is Optional

So, you’ve paid your car off. Congratulations. At this point, you actually own the vehicle outright and it’s completely up to you as to whether or not you wish to insure the car against physical damage.

This is technically when you can get cheaper insurance for your car by dropping the extra coverage. But, is that really a good idea?

Saving money on car insurance is a great thing. Just be sure you are not risking your personal finances to save a few bucks.

You may want to keep the physical damage coverage if your car is still valuable or if you’re not in the position to pay for repairs, or worse yet, completely replace the vehicle if it’s totaled.

With no physical damage coverage in place, that would certainly be the case if you’re involved in an accident.

Remember, insurance is a good thing. It’s designed to let us to pay an exact, expected amount of money in exchange for a whole bunch of money if it’s necessary…money you may not have lying around otherwise.

Getting a better deal may be as easy as switching insurers…and you may get to keep the same coverage you enjoy right now at a lower rate.

Or, you might even be able to add additional coverage like accident forgiveness and/or ticket forgiveness for the same price.

Read more: How to get cheap car insurance.

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