When you buy a car and you are paying a loan, you are generally required to carry full coverage insurance: if the car got totaled, the people to whom you owe money would get their money back. After the loan is paid off, you frequently have a choice. You can continue to pay for full coverage or you can reduce your coverage so that if you have an accident, you will not get any money back for your vehicle. You will continue to have coverage for other drivers and their cars; just none for your car.
The point at which you should consider changing coverage varies from household to household. If you have no savings, it would be a good idea to retain full coverage because otherwise you could lose your transportation completely. Even if you only got a few thousand dollars back on your car after an accident, you would be able to get some kind of replacement for it through comprehensive insurance coverage.
If you have savings that are greater than the value of your vehicle, then you might consider reducing your coverage. For example, if you have a vehicle that is worth $2000 and you have $4000 in the bank, then it may not be worth paying full coverage when the maximum you could get back for a totaled vehicle would be $2000.
There are many websites you can use to find the value of your vehicle. If you have had your car or truck for awhile, you may want to check on how much your car or truck is worth. You may want to check more than one to see how close the estimates are; be sure you are honest about the condition of the car. With the economy reducing the demand for cars in general and last year’s spike in gas prices reducing the demand for larger vehicles, a larger eight-year-old vehicle may be worth much less than one would think. There is a glut of used cars on the market and the “Cash for Clunkers” program is probably going to encourage buying new vehicles. This means that used vehicles will continue to fall in value.
Even if you find that $15,000 new vehicle five years ago is basically a junker, speaking in monetary terms, the good news is that you don’t have to insure it for quite as much. Who knows: money saved on insurance can contribute to a new car fund down the road.