Financing

• When you finance a vehicle, the lender becomes a lienholder, meaning it has a financial interest in the vehicle until you've repaid the loan in full. The lender will insist that you carry physical damage insurance coverage, consisting of comprehensive and collision, for the course of the loan. The lender's status as a lienholder requires your insurance company to notify it if you file a physical damage claim or attempt to drop the insurance coverage. If you do drop the coverage, the bank could attempt to repossess the vehicle.
  
  

Taking Ownership

• When you have fulfilled your obligation to the lender, you'll take full ownership of the vehicle and receive the title. At this point, you'll have more options available to you regarging your insurance coverage, as no state laws require you to carry physical damage coverage. While your premium won't necessarily drop automatically, there are some steps you can take to reduce the amount you pay, specifically by dropping or reducing physical damage coverage.
  
  

Dropping Coverage

• It may take four or five years to pay the vehicle off, during which time the vehicle depreciates significantly in value. Therefore, the value of your vehicle may not justify the expense of physical damage coverage, which can comprise up to 50 percent of your total car insurance premium. You can relieve the burden of high insurance premiums by dropping physical damage as soon as you receive the title from your lender.
  
  

Considerations

• You may not be comfortable with the idea of having no physical damage coverage, especially if you don't have the means to pay for a major vehicle repair or to purchase a new one if your vehicle is totaled in an accident. Instead of dropping physical damage completely, another option is to raise the deductibles, which is the amount you pay out of your pocket before coverage takes effect, as high as your insurer will allow. You'll still have some protection while reducing your premium.