Should I Buy Full Coverage on My Car Insurance?
This question is asked by almost every consumer who buys car insurance and has a vehicle that may be 5 or more years old.
At some point, you begin to wonder if the cost of full coverage car insurance is worth it since you may have never had a claim on that car.
The first step in making this decision is to get an accurate vehicle value from a service such as Kelley Blue Book. Once you have an approximate value of your vehicle, take a look at what you are paying for comprehensive (also called Other than Collision) and collision coverage.
One ballpark calculation used to determine if you should carry full coverage on your car is if your car’s worth is less than 10 times the cost of your premium, then it’s time to drop full coverage and carry liability coverage only.
So for example, if the cost of OTC and collision coverage adds up to $400 a year, and your vehicle is worth less than $4,000, then you might want to drop the full coverage.
Again, this is just a ballpark guideline and is not meant to guide you in your decision. You need to look at your own financial situation and make your decision. If your vehicle is totalled in an accident (which wouldn’t take much damage), would you be able to purchase a different vehicle to replace it?
If not, then you might want to keep full coverage on the vehicle until you are financially able to absorb a total loss, or until you have an alternate vehicle available.
The decision to drop full coverage on your car is ultimately up to you and there is no ‘set in stone’ guideline for removing coverage.
Related car insurance information:
- Car Insurance Coverage: Do You Have Enough?
- Affordable Insurance for Ford Focus
- Classic car insurance – specialized insurance coverage for less
- Are Those Door Dings Covered by Insurance?
- Why is Liability Insurance Required for my Car?
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Good rule of thumb for purchasing any insurance is “Could I afford this loss if it were to happen?” If the answer is no, then get the insurance. If the answer is yes, you can afford not to have it…
This is a good article on whether to take out the full coverage and risk an accident occurring, i.e. risk v reward so to speak. I would suggest that there shouldn’t be an overriding factor here. I mean to say that car insurance is clearly an important insurance similar although not quite as essential to home insurance. This means that the preference is to keep the full level of cover just in case but if you find it’s unaffordable in relation to your overall expenses you really have to weigh it up and see how you would cope if something was to go wrong in the future or not?! In conclusion the tip given here on less than 10 times the value to drop the level of insurance is a valid one, but ultimately if the worst happened could you take that or not, if yes try to stick if not then keep it and maybe try and cut back on other expenditure!
Karen,
I think you bring up a good point about dropping the collision coverage once the value of your auto drops below a certain point. There comes a point where most people can take on the risk of property damage for an inexpensive car. It’s a good way to save some money, as long as the owner doesn’t have a lien holder!