If you have a car loan or lease agreement, your lender likely requires full coverage insurance; however, once it has been paid off you should consider dropping comprehensive and collision coverage altogether.
Decisive is whether the cost of your annual comprehensive policy exceeds its value (minus any deductibles).
1. You’re paying more than 10% of your car’s value
Full coverage auto insurance provides drivers with peace of mind when driving their vehicle, protecting against the cost of repairs caused by non-collision accidents such as animal impacts, severe weather or vandalism. But if you tend to avoid such issues and can cover repairs yourself then it might make more sense to reduce comprehensive and collision coverage in your policy.
ValuePenguin reports that annual full coverage auto insurance costs typically equal 10% or more of your vehicle’s value, including your deductible payment. As long as you’re driving an older or high mileage vehicle that has depreciated significantly, keeping full coverage often makes sense; otherwise it could be detrimental.
If your vehicle is still being financed through an auto loan, its lender may require full coverage to satisfy their requirements. You may also opt to maintain collision and comprehensive policies as extra peace of mind that your car is protected.
Newer cars tend to be more costly to repair or replace than older ones, and any damage sustained to a brand-new one could cost thousands in repairs or replacement expenses. Therefore, comprehensive and collision coverage may be worthwhile if your car requires expensive maintenance costs.
As each insurer calculates rates differently and market conditions change constantly, when considering switching providers it’s advisable to compare quotes from multiple companies before making your choice. When possible it would also be prudent to switch as close to the end of your policy term as possible so as to prevent any gaps in coverage; having an emergency fund could come in handy should unexpected auto repairs arise as well as notifying current insurer of change (in case they need to cancel existing policy and issue new one). Finally if switching from full to liability coverage make sure they know so they can cancel old policy and issue new policy immediately – see also section on next page).
2. You have a big emergency fund
An emergency fund is an indispensable element of financial security, providing you with a cushion against unexpected expenses without resorting to high-interest credit cards or loans. Experts advise putting away at least three to six months’ bare minimum living expenses into a separate savings account so it’s easily accessible when necessary.
As having an emergency fund may help reduce costs associated with full coverage auto insurance, it’s essential that this money be saved only for use during true emergencies; and not used for semi-annual car payments or holiday gifts. Emergency savings accounts should only ever be drawn upon when necessary – such as job loss or major medical bills.
If you have a significant amount of cash in a savings account, consider what the potential returns could have been had it been invested instead. For instance, investing this cash in the stock market over time might have enabled faster returns than simply keeping it safe in an old-school savings account.
Consider whether or not dropping auto insurance could impact how your car might need to be replaced after an accident, particularly if there’s someone willing to lend you their vehicle while yours is being fixed or replaced. When making this decision, this factor must also be taken into consideration.
3. You’re driving an old or high-mileage car
If your vehicle is no longer worth much or you are covering many miles on it, full coverage might no longer make financial sense. While it might seem logical that a fully-insured, brand new car would be worth its replacement value when totaled or stolen, cars depreciate over time; an old 10-year old might only be worth $6,000. Although there is no absolute rule regarding when to drop full coverage policies it usually makes sense when the value of your vehicle drops below the cost of its premiums.
Your car’s mileage also plays a crucial role in its value. High mileage cars tend to depreciate faster, and driving long distances may impact its quality and performance over time. If your vehicle has reached over 100,000 miles on its odometer, it might be wise to drop comprehensive and collision coverage altogether.
Even if your vehicle is old or high mileage, you should still maintain some types of coverage if possible – liability and roadside assistance being just two examples. In areas prone to natural disasters or with features that would be costly or difficult to replace – comprehensive protection should also be maintained for added peace of mind.
Typically, full coverage must remain active until your lease or loan term has ended, although you should consider dropping collision and comprehensive if your car has been paid off and can afford repairs out-of-pocket. If this decision is taken, however, an emergency fund should be set aside in case of repairs and replacements that arise out-of-pocket.
If you’re thinking about dropping full coverage auto insurance, consulting an experienced professional is key to making an informed decision that meets your needs. To get started, find an agent nearby – they’ll provide a free quote and can help determine whether full coverage auto insurance suits you or not.
4. You’re in an accident
Full coverage auto insurance refers to policies that include liability, collision and comprehensive coverages as well as any additional required by some lenders, such as medical payments and roadside assistance. It’s essential that you discuss which coverages best meet your needs as well as what if any claims will actually cover in an accident situation with both your lender and insurer.
Ditching collision and comprehensive coverages could save money on your insurance premium; however, doing so could end up costing much more if an accident happens that’s uninsured for.
If you’re considering dropping full coverage, it may be beneficial to wait until after the loan or lease on your car has been paid off and shop around for new coverage before your current policy’s cancellation date; that way you won’t experience any gaps in protection; additionally it is best if a policy can be purchased within weeks after your current one was cancelled in order to avoid late-payment fees and penalties.