When Does It Make Sense To Drop Collision and Comprehensive Car Insurance?

update our net worth on a monthly basis and I am always looking for ways to use that information to save us money.

During my most recent analysis, I noticed the values of our cars slowly drop as they get older and their mileage grows.

That shouldn’t shock anyone, but there are always some people that are clueless.

This month, my analysis led me to ponder a question that I don’t think enough people consider.

This question could potentially save you hundreds of dollars per year.

So what is this simple question?

At what point does it make sense to no longer pay for collision and comprehensive car insurance?

A Quick Refresher On Car Insurance

First, let’s take a quick refresher course on car insurance. There are a few main types of car insurance most people carry.

The first is liability, which covers your liability if you cause an accident both from a personal injury to others perspective and a property perspective. It doesn’t cover your own injuries or property damage.

You must carry this type of insurance and you can’t quit carrying it in most states. I wouldn’t suggest you do it even if you could.

The second type of car insurance is comprehensive insurance. This type of insurance is optional (unless you have a car loan) and covers you if something happens to your car that isn’t caused by another driver.

According to Allstate, their comprehensive car insurance covers the following:

  • Storms and natural disasters like tornadoes, hurricanes and earthquakes
  • Vandalism and theft
  • Broken or shattered windows and windshield
  • Animal damage
  • Falling objects

The last main type of car insurance collision insurance. This pays to repair or replace your car if you damage or destroy your car in an accident. This type of insurance is optional as well, as long as you don’t have a car loan that requires it.

Since you can’t drop your liability coverage, and you really shouldn’t, we’re going to focus on the comprehensive and collision coverage options.

You can’t control when you might have to make a comprehensive claim, because the factors that cause claims are mostly out of your control, but you can control the factors that would cause you to have to make a collision claim.

Should You Drop Collision Or Comprehensive Insurance?

So, what factors should you consider when thinking about dropping collision or comprehensive car insurance?

The first is the value of your car you stand to claim if your car is totaled. Since you’ll only get paid for damages above your deductible, don’t forget to subtract that from the total value.

For example, let’s say I have a $10,000 car and a $1,000 deductible. If my car was totaled, I should expect to receive about $9,000 from the insurance company. However, if I only had a $2,000 car and a $1,000 deductible I’d only expect about $1,000.

Armed with the information above, would you be able to cover that cost out of pocket should you have to replace your car? If you could, then you’re probably a candidate to drop these coverages. However, there are other factors you should consider.

The next most important detail to consider is how much collision and comprehensive insurance cost you. If I only had to pay $50 a year to protect myself from a $9,000 loss, I might think that was a good deal.

However, if I’m paying $1,000 a year to cover a potential $9,000 loss then I might want to drop my coverage. You need to figure out how much you’re comfortable with paying to be insured for the value of your car.

Finally, you should consider how often you make claims.

If you make a ton of claims because you’re constantly causing accidents, you might need the insurance! But what if you’ve never been in an accident? Should you cancel comprehensive and collision insurance based on that fact alone?

In this case, it is important to remember that past performance isn’t a guarantee of future results.

If you end up in an accident tomorrow, would you be able to replace your car? Would the savings from not paying collision and comprehensive premiums eventually pay off from the limited losses you may have in the future?

That’s for you to decide, but at least you know how to come to that conclusion.

Do you carry comprehensive or collision insurance on your car? We currently do, but we are considering dropping it in the near future. You have to analyze the costs, risks and potential losses to make a financially sound decision!

Let us know what you decided in the comments below!

Image by: JJ_The_Jester Text added by: Lance Cothern

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About Lance Cothern

Lance Cothern, a Certified Public Accountant (CPA) licensed in the Commonwealth of Virginia, is the founder of Money Manifesto. You can read more about him here or connect with him on Facebook, Twitter, Google+ or Pinterest.

Comments

  1. We keep full coverage on Greg’s Prius, but I only have liability on my minivan. It’s maybe worth $4,000- MAYBE, and it’s been paid off for a while. I also only drive 2-3 times a week.

  2. I keep both on all of my cars. I only pay an extra $100 a year for each vehicle, but they are still have values over $10,000, so I don’t mind paying it.

  3. I could see us getting to the point in the future where we remove comprehensive and collision on our vehicles. As our net wealth continues to grow we will have more saved/invested to take care of a big need should one arise.

    • I would recommend it for someone with little to no assets, but once you have a decent amount, it might be worth it.

      • The general principle of insurance is to protect yourself against misfortunes that you cannot recover from. Most people cannot recover from the loss of their house, so homeowners insurance is a great idea. Most people can afford to replace their smartphone, so extended warranties are a bad idea.

        On average, extended warranties only pay you 30 cents on every dollar. Compared to that, car insurance is a pretty good deal at 65 cents on every dollar. But it’s still only 65 cents on every dollar. The other 35 cents go to the agent, the adjuster, the ad agency, and the insurance company’s profits.

  4. Good post, Lance. Very concise explanation. Also very timely as we just renewed our insurance and I have decided we need to shop around. Both of our cars are over 10 years old and both have over 150,000 miles on them. We don’t do a lot of driving. Hubby tele commutes and I drive less than 10 miles to work. I want to keep the deductibles high and will probably drop both collision and comprehensive. We are anticipating getting rid of the older car and probably buying a nice used car once we get all our credit cards paid off. We are planning on have credit card debt paid off within a couple of months, definitely by the end of the year. Thanks for this information. Will definitely bookmark the post and reference it.

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