When should you reduce your auto insurance?

Before you reduce car insurance coverage you should (1) review your policy annually, (2) figure out your state's minimum requirements, and (3) compare rates from multiple companies.

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A former insurance producer, Laura understands that education is key when it comes to buying insurance. She has happily dedicated many hours to helping her clients understand how the insurance marketplace works so they can find the best car, home, and life insurance products for their needs.

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Joel Ohman is the CEO of a private equity backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Jo...

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Reviewed by Joel Ohman
Founder & CFP®

UPDATED: Jun 26, 2020

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Here's what you need to know...

  • Life changes often change the level of car insurance you need
  • Liability insurance is mandated in most states
  • Collision coverage will protect you if your car is damaged in an accident

When is the right time to reduce the amount of  car insurance coverage you have? While many people don’t have enough car insurance in place, there are times when lowering the level of coverage you have in place makes sense.

Ideally, you are reviewing your car insurance coverage annually to make sure that the level of coverage you have in place is still the right one for your needs.

If you haven’t started doing this yet, make a note on your calendar to do so a couple of months before your current policy is up for renewal.

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When’s the Right Time to Reduce Your Car Insurance?


When you are going over your policy documents, make note of the type of car insurance coverage you currently have. In most parts of the United States, you are required to have third party liability coverage in place to pay for damages you cause in an at-fault accident.

Even in a no-fault car insurance state, you are still required to have a certain level of liability coverage. If you are involved in an accident that causes serious injuries, you may be sued to recover damages over the amount available to the occupants of the other vehicle under their car insurance plan.

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What Type of Insurance is Best for Me?

When your life circumstances change, you may want to consider reducing your car insurance coverage. For example, if you took out a loan to pay for your vehicle, the lender may have insisted that you have collision and comprehensive coverage in place as a condition of advancing the funds.

Collision coverage covers the cost of repairing your car following an accident involving making contact with another vehicle or an object. It also pays for damage sustained in a rollover accident.

Comprehensive coverage pays out when the damage caused to the vehicle is due to a reason other than a collision. Examples of this would be damage caused by severe weather, flooding, acts of vandalism and fire.

However, you are not covered for the replacement cost of your vehicle. Instead, the payout is limited to the cash value of your vehicle.

What this means is that you continue to pay the same premium for an ever-decreasing level of coverage. The minute you drive your car off the dealer’s lot, it starts to depreciate.

Once your car has been fully paid off, you may want to consider dropping the collision coverage entirely. Ask your insurance company for an estimate of your car’s current value before you make your decision.

It may be more economical to make minor repairs yourself and look at buying a new car if it’s totaled in an accident rather than continuing to pay for the collision or comprehensive coverage.

Educate Yourself First

You may also be thinking that it’s time to reduce car insurance coverage when you find it difficult to keep up with your premium payments. Before you do so, consider the rates that other car insurance providers can offer you.

You may be able to find more affordable coverage by shopping around. Each insurance company uses its own formula for determining the level of risk that an applicant presents and setting rates.

By spending a bit of time online considering your options, you may be able to find a more affordable solution that will give you an alternative to lowering your policy limit for your third party liability coverage.

This is important protection that shields you from being personally responsible for paying for damages you cause in an accident. If you are wondering about when to reduce car insurance coverage, do consider your actions very carefully before making a decision.

Find the right type of coverage you need now by entering your zip code below!


  1. https://www.investopedia.com/terms/t/third-party-insurance.asp?lgl=no-infinite
  2. https://www.allstate.com/auto-insurance/collision-coverage.aspx
  3. https://www.geico.com/information/safety/auto/severe-weather-safety/
  4. https://www.wsj.com/articles/SB115724724470352757
  5. https://www.allstate.com/auto-insurance/car-insurance-limits-deductibles.aspx

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