Do You Need More Than Liability Insurance on Your Old Car?

A brand new car fresh off the lot is a big investment. The value of the car is much higher than it will be in a few years. Plus, you may have a loan on the vehicle or you may be financing it. Either way, the holder of that loan wants to ensure their investment is protected. In most cases, the lender will require you to carry comprehensive car insurance on the vehicle. But for those who have an older car, it may no longer be necessary to maintain the highest level of auto insurance coverage. When can you drop your policy limits safely?

About Liability Insurance

Most people need to maintain liability insurance on their vehicle to remain in compliances with state laws. It helps protect other drivers on the road by covering any property damage, medical bills or other losses individuals face when you've been involved in an accident that you were at fault for creating. However, it provides no coverage to your vehicle.

When Should You Consider Downgrading Your Policies?

Aside from liability insurance, you are not legally obligated to maintain other types of car insurance plans. While it makes good financial sense to do so in most cases, you may be able to reduce your coverage and costs by downgrading some of your coverage. If you still have a loan or are leasing the vehicle, you may be under contract to maintain your full coverage.

Before you downgrade, consider these factors:

• If you were involved in an accident today, would you be able to pay for the repairs necessary on the vehicle out-of-pocket or purchase a new car to replace this one?
  
  
• Do you feel your car is inexpensive and easily replaced in the instance of significant damage?
  
  
• Have you invested heavily into your vehicle with customizations that you would not wish to lose should you be involved in a significant accident?

Keep in mind that, The Insurance Information Institute states that in 2014, the average collision claim filed against car insurance policies was $3,160 and the average comprehensive claim was $1,547. If you don't feel comfortable making these payments in the event of an accident, maintain your auto insurance.