When Should you Drop Full Coverage on Your Car?

When people refer to a car insurance policy as being “full coverage”, that usually means having not only the minimum amount of coverage required by law in your state but also a policy that will provide protection for you if your vehicle is damaged or destroyed. A policy like this would provide you with insurance that covers accidents where your car is damaged by colliding with another car or fixed object (often referred to as collision insurance) and also damage from outside sources such as severe weather, theft, or deliberate criminal damage (usually referred to as comprehensive insurance).  If the title to your vehicle is held by a lender, you will usually be required to carry full coverage auto insurance on the car until the lien has been satisfied in full. This is done to protect the lender in the event that something happens to the car and you are not able to afford to repair it or replace it on your own. If you paid cash for your vehicle when you bought it or have since paid off the amount financed, you have a little more freedom to decide which type of coverage to carry.

The decisions you make will have major financial consequences so it is important that you made an educated and informed decision. Carrying too much auto insurance will leave you paying more than you should for your policy each month and carrying too little can leave you in a difficult position if your car is damaged, stolen, or destroyed in an accident. Many people will opt to abandon full coverage insurance on their cars immediately after they have been paid off because they assume that they are a safe driver and don’t have to worry about causing an accident. This can be a huge mistake as it puts you in a position where you have to trust that other drivers on the road with you have adequate insurance to cover any damage they may cause by hitting you. Based on my own personal conversations with a friend who is a highway patrol officer, there are far more uninsured or under-insured motorists on the streets and highways than any of us would like to think. With that being said, there are strategic adjustments you can make to your auto insurance policy at certain times that can save you money and keep you well protected at the same time.

There are times where it makes sense to drop your full coverage and modify your insurance policy to carry only liability insurance. The important point to keep in mind here is that an insurance company will pay out a maximum of the current market value of your car if you need to file a claim. Even if your car is in perfect working order, if the market value of the vehicle drops to a point where it doesn’t make sense to pay the additional monthly premium; you are probably better off to drop that coverage and set aside the money saved to put towards your next car. There is no perfect number to make this decision but it can make good financial sense when the value of your car gets below around $5,000. Another factor you will want to consider is your ability to purchase a new car in the event that your car is totaled in an accident. As long as you have some savings and the ability to get back on the road, you can have the flexibility to make this change when you feel that it’s appropriate.

Remember that every insurance company is different when it comes to how they treat different elements of a plan such as liability, uninsured motorist, collision, and comprehensive coverage. There are times when it can be a good decision to shop around for the best deal on the exact coverage you are looking for, especially when you are insuring an older vehicle with a lower value. If you feel like you are overpaying for what you are getting, take the time to get an online quote from a few competing companies to see if you could save money by making a change. When it comes to making important financial decisions, it is worth the effort to investigate which company can offer you the best combination of low cost and reliable service.

After you’ve done your comparison shopping, if there is no clear financial advantage in making a major change; there are still some options you can consider to lower your payment. The one option offering the greatest potential savings is raising your deductible amount. Even a small change from $300 to $400 or $400 to $500 could save you as much as $20 per month. Last but not least, examine other items that you may currently be paying for such as roadside assistance, rental car benefits, and towing. While each of these may seem like they carry a relatively small cost of just several dollars per month, when added together they can really add up.  As you make your decisions, try to remove the emotional connection to your car from the equation. Carefully weigh your personal accident history to estimate the probability of having to file a claim, your financial position, the value of your car, and the amount of your monthly premium. Sometimes it can help to put all of the relevant figures on paper where you can visualize several different scenarios. This can be one of the best ways to fully understand your options and make an intelligent and informed decision as to how much insurance you need to carry.