Maybe you’ve got a ride that’s no longer sweet and new, so much as it is salty-and-getting-along-in-years. Maybe your financial situation has recently changed. Whatever the reason, you might find yourself considering dropping full coverage on your vehicle. Here’s what to ask yourself before you do:
What exactly is full coverage insurance?
Full coverage insurance, while not technically an insurance term, usually means the combination of collision insurance, which covers damage in the event of an accident (this can range from a fender-bender to an altercation with an icy road), and comprehensive insurance, which covers damage to your vehicle in the event of all kinds of accidents (weather damage, fire, theft, etc.).
Now that you have an understanding of what exactly full coverage is, we’ll dive into the pros and cons of dropping it.
How will I benefit from dropping full coverage insurance:
Full coverage insurance does have some cons, for example:
- Full coverage is more expensive ( although you can still find cheap insurance with full coverage). When your car becomes around 8 or 9 years old you can start looking at the math for comprehensive and collision. An easy rule of thumb for that math, according to clarkhoward.com, is to “Take your monthly premium to for the collision and comprehensive insurance. Multiply it by 12 (or by 4 if you pay quarterly) to determine your yearly cost. When your yearly cost for C&C becomes greater than 10 percent of your car’s current value, that’s the point at which you can remove the full coverage, and just pay the liability premium. This math is based on the law of averages for accident claims.”
- Keep in mind: A moving violation or an accident can still make the cost of coverage rise. Also, you still have to pay your deductible on most claims before the insurance kicks in and pays the rest of the repair cost.
What are the consequences of dropping full coverage insurance:
- Liability-only coverage typically does not pay for damage to your own car or costs associated with your own injuries from an accident you cause. If your vehicle is stolen the comprehensive insurance part of the full coverage is what would have paid for any damages if your vehicle was recovered. Comprehensive pays out ACV (actual cash value) if your vehicle is returned but damaged so badly that it is totaled or if it is not returned at all.
- Liability-only insurance does not come stocked with the benefits of a rental car if yours is in the shop—or a tow service if your vehicle breaks down.
- Liability-only insurance manages to keeps you on your toes, but not in a good way: In the case of an accident, you might have to pay completely out of pocket if your vehicle is totaled. Even if you feel like you’re the safest driver out there, mother nature can make you think twice. Think wet or icy conditions, or other unexpected issues—some events you just can’t prepare for, and without collision, you simply won’t get monetary help from your insurer toward repairing or replacing your vehicle.
The takeaway? If you’re considering dropping your full coverage car insurance, really take your time about listing the pros and cons at hand. Do what is best for you and remember you can never be too careful. Before you make an insurance decision, make sure you understand the value of your vehicle and what you can afford in premiums. If you’re still confused, lean on a licensed insurance agent (like our pal, Neil, here at the Zebra) for advice. Lastly, remember that any situation can happen at any time, so be sure you are financially prepared for what may come.