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Is insurance lower on a paid off car?

How to Lower Car Insurance Costs

Having enough car insurance to cover potential losses is important for any car owner, but no one likes to spend more money than necessary. Consumers can take advantage of the fact that insurance companies are highly competitive. The Insurance Information Institute notes that annual policy costs can vary by hundreds of dollars, depending on the make and model of the car you drive and the insurance company you choose. 1

Here are five tips for reducing your car insurance costs:

1. Seek Multiple Insurance Quotes

Before you buy car insurance, get at least three insurance quotes. The more comparisons you make, the better chance you’ll have of saving money.

Each insurance company has its own formula for calculating car insurance rates. They place different levels of importance on such factors as the type of car you drive, annual mileage, your age, your gender, and where you garage your vehicle(s).

Be sure to compare apples to apples when shopping for car insurance, advises 2 Some less expensive policies may lack the coverage you need. For example, comprehensive protection pays to repair car damage from mishaps other than collisions, such as vandalism or fire. If you want this type of protection, you must buy a policy that includes this coverage.

2. Ask About Discounts

You’ll miss an opportunity to cut car insurance costs if you don’t ask about discounts. They’re available for a variety of reasons, such as meeting low-mileage thresholds, having a good driving record, using anti-theft devices, and completing driver education courses. There also are loyalty benefits for staying with the same company for a certain number of years. Teen drivers often receive discounts for getting good grades.

You can’t take advantage of discounts if you aren’t aware of them. To make sure you’re saving as much as possible, CBS News suggests that you ask your insurance agent or carrier to tell you about all available discounts. 3 

Before you buy car insurance, get at least three insurance quotes.

3. Pay Your Bills on Time

Car insurance companies often consider credit histories when setting their rates. If you have a low credit score with the three major credit bureaus — Equifax, Experian and TransUnion — you may be penalized. Many insurers rely on credit bureau information when creating their own credit-based insurance scores for consumers.

A good way to improve your credit history is to pay your bills on time. Under federal law, you can obtain one free credit report each year from each of the major credit bureaus. Review your credit reports carefully to make sure they don’t contain errors.

Be aware that not all states allow insurers to use credit information to calculate car insurance rates. According to the Insurance Information Institute, states that restrict the use of credit histories in auto insurance rates include California, Hawaii, and Massachusetts. 4

4. Consider Using the Same Insurer for Multiple Policies

Many insurance companies will reduce your rates if you purchase two or more types of insurance from them, such as car and homeowner policies. This is known as “bundling.» It offers the convenience of having just one insurance company to contact if you have questions about policies.

Bundling can save you money, but it isn’t always the best alternative. Before you agree to bundling, Equifax suggests that you shop around to see if you can get a better deal by purchasing your policies from separate carriers. 5

5. Choose Your Car Carefully

Before you buy a car, it’s important to make sure you choose one that you can afford to insure. Insuring inexpensive vehicles costs less because they’re less costly to repair or replace following accidents.

According to Forbes, the cheapest types of cars to insure are family-oriented minivans and sports utility vehicles. 6 New vehicles are more costly to insure than used ones.

Your insurance rep can help you determine the insurance costs for various makes and models that interest you.

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*Quotes may not be available in all states or for all products. In CA, quotes for all products must be obtained through a local independent agent.

The information on this site is general in nature. Any description of coverage is necessarily simplified. Whether a particular loss is covered depends on the specific facts and the provisions, exclusions and limits of the actual policy. Nothing on this site alters the terms or conditions of any of our policies. You should read the policy for a complete description of coverage. Coverage options, limits, discounts, deductibles and other features are subject to individuals meeting our underwriting criteria and state availability. Not all features available in all states. Discounts may not apply to all coverages and/or vehicles.

Insurance is underwritten by The Travelers Indemnity Company and its property casualty affiliates, One Tower Square, Hartford, CT 06183. In TX: Automobile insurance is offered by Travelers Texas MGA, Inc. and underwritten by Consumers County Mutual Insurance Company (CCM). CCM is not a Travelers Company. In CA: Automobile Insurance is underwritten by Travelers Commercial Insurance Company, Certificate of Authority # 6519; Travelers Property Casualty Insurance Company, Certificate of Authority # 6521. Homeowners Insurance is underwritten by The Standard Fire Insurance Company, Certificate of Authority # 3545. Boat and Yacht Insurance is underwritten by The Standard Fire Insurance Company, Certificate of Authority # 3545. All underwriting companies listed above are domiciled in the state of Connecticut and are located at One Tower Square, Hartford, CT 06183. In WA: Automobile Insurance is underwritten by The Standard Fire Insurance Company. Homeowners Insurance is underwritten by Travelers Personal Insurance Company. Personal Article Floater Insurance is underwritten by The Phoenix Insurance Company and The Travelers Indemnity Company of America. Personal Liability Umbrella Insurance is underwritten by The Standard Fire Insurance Company, The Automobile Insurance Company of Hartford, Connecticut, The Travelers Indemnity Company of America, The Travelers Home and Marine Insurance Company, Travelers Commercial Insurance Company and Travelers Personal Insurance Company. Special Event Insurance is underwritten by The Standard Fire Insurance Company. Boat Insurance is underwritten by The Travelers Home and Marine Insurance Company. Yacht Insurance is underwritten by The Standard Fire Insurance Company, The Automobile Insurance Company of Hartford, Connecticut, and The Travelers Indemnity Company of America. Underwriting companies in CA and WA listed above are located at One Tower Square, Hartford, CT 06183.

Pet Insurance, Motorcycle Insurance, and Travel Insurance is not underwritten by Travelers or its Affiliates (“Travelers”). Travelers utilizes its affiliate, InsuraMatch, LLC, an independent insurance agency, to refer consumers interested in pet coverage, motorcycle and off-road vehicle coverage, and travel coverage. For more information about the underwriting entities click “Learn More” to be directed to the specific product page.

Does Financing a Car Affect Your Car Insurance?

Middle-aged woman checking prices on phone in car

Financing a car has certain effects on your car insurance policy, but not all of them will cost you money.

Key Takeaways

  • When you finance a car, the lender will require coverage to protect its investment.
  • In addition to state minimum requirements, lenders will require both collision and comprehensive coverage, which can increase your insurance costs if you were not already planning on that type of coverage.
  • Lenders will want to be listed as the payee on your policy, but listing a loss payee does not affect your insurance rate.
  • Lenders may require year-round coverage, even if you plan on storing the vehicle for part of the year.

Lenders Require Full Coverage

The main expense when insuring a financed car is that lenders require both comprehensive coverage and collision coverage on top of the state minimum requirements for auto insurance.


Being required to carry comprehensive and collision with your lender will raise your car insurance rates when compared with a liability-only policy.  

When you purchase a vehicle with your own money, you can make the cheaper choice to purchase only your state’s mandatory minimum coverage.

Example: Joan purchased a $20,000 car with $10,000 cash and a $10,000 loan, but didn’t want to pay for full coverage insurance because she felt the risk of damage was very low. The lender required both comprehensive and collision coverage. The car insurance rate doubled with the additional coverage requirement because the car was relatively new.

Lenders Become a Payee

Lenders will ask to be the payee in case of loss and may also ask to be listed as additional insured for the car they have financed. It does not cost you any more money to add a lender as a loss payee or additional insured.

Example: Jean purchased a $20,000 car with $10,000 cash and a $10,000 loan. She placed full coverage insurance on the vehicle to protect against a loss and listed the lender as a loss payee. The car insurance rates were identical.

Reduced Coverage During Non-Use Months

You might think that if your car is not in use year-round, you’re off the hook for insurance coverage, but that is not always the case.  


Most financed cars are required to carry full coverage all year round until the loan is paid off. The lender decides.

Some lenders will allow you to put vehicles in storage when not in use, but documentation from your insurance carrier will probably be required along with your signature verifying you will not drive the vehicle. The lender will most likely have a specific form for your insurance agent to fill out. Storage of a vehicle can be a big cost-saving and it is worth it to ask your lender if it is a possibility.

Example: John financed a new convertible to ride around in for the summer months. He wanted to keep it in good condition, so he drove an old pickup truck in winter. He asked his lender if he can reduce his insurance coverage in the winter months to comprehensive only. The lender agreed and had John complete a form and take it to his insurance agent for final completion. John’s insurance rate was reduced all winter long because of the change in coverage. He will need to contact his insurance agent in the spring to return to full coverage.

Lenders Can Change Your Insurance If You Lapse

Insurance carriers update loss payees about any changes to the policy regarding the vehicle they are listed on. These changes include late payments, coverage changes, and policy cancellation. So if you make any changes to your car insurance policy, your auto loan provider, as a payee, will be the first to know.

Example: Joe financed a new car through his credit union and listed them as a loss payee on his car insurance. A few months later he got behind on his car insurance and paid past his due date. Luckily, he was still in his grace period when he submitted his payment. The credit union received a notice of the payment being late. The lender called the insurance company to find out if the payment was made. Confirmation of the payment was verified, but if the payment had not been submitted, it could have led to the lender placing a third-party car insurance policy on the vehicle.

When Financing a New or Late-Model Car

Whether you are buying a new car or upgrading to a newer car, your car insurance rates are likely to change. Often rates go up because you are insuring a more expensive vehicle. Lots of factors affect the cost of insurance.


Everything from a vehicle’s age to its safety rating can impact your rates. Always check with your insurance agent to get a quote on the insurance before making a car purchase. Insurance should be figured into your budget before buying a car.

Example: Jill wanted to buy a new car, and knew she could afford to pay about $500 per month, including car insurance. An appraisal revealed her old car had a trade-in value of around $4,000. Jill wanted a 60-month loan so she could keep both interest and monthly payments in check. She plugged the trade-in value and desired monthly payment into a calculator and estimated that she could afford a car that cost around $32,000.   However, this did not include car insurance. After researching a few models, Jill checked with her car insurance provider and discovered the new car insurance premium would cost $80 a month. Spread over the life of the car loan, that would be about $4,800, meaning a more reasonable sticker price was somewhere around $27,000 to meet her affordable total price goal of $32,000.

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