When Should Full Coverage Be Dropped on Auto Insurance?

by Steve Lander
Full coverage can be a waste of money on older cars.

Basic auto insurance pays for your liability. If you get in an accident and it's your fault, your liability coverage pays to fix the other person's car or to deal with injuries. Your car, though, is your problem. Collision and comprehensive coverage, sometimes called full coverage, will pay to fix your car when something happens that isn't someone else's fault. However, it costs extra money and you might not need to carry it.

Collision vs. Comprehensive

The two types of insurance that make up full coverage protect you against different things. Collision coverage pays for damage done to your car when you're driving it. If you get in an accident with another car or you drive into the side of a building, that's when you use your collision coverage. Comprehensive covers just about every other type of damage. If your car is stolen, vandalized or damaged by a falling tree or windstorm, comprehensive coverage pays to replace or fix it.

When You Need It

Full coverage costs extra money, so it isn't something you should carry without thinking it through. Many car loans and leases make you have full coverage, because it protects the value of the car. Generally, you want to have it when your car is worth enough money that you couldn't afford to replace it yourself.

Choosing to Drop It

Dropping full coverage is a personal decision. One rule of thumb is to start thinking about it when your car is more than eight years old; the old five-year rule doesn't work well today, because used cars tend to be worth more than in years past. Personal finance expert Clark Howard recommends figuring out how much you spend for the full coverage part of your insurance every year. If it's more than 10 percent of your car's value, it could be time to drop the coverage.

Alternatives to Dropping

Dropping your full coverage could save you money, but if you don't have enough money saved to replace your car if something happens, it could leave you without a car. In that case, you'd want to hold onto it until you either save more or your car's value drops to the point where you can afford to replace it. In the interim, you could call your car insurer and ask about a higher deductible. This means you pay more of the cost of replacing your car, but your premium goes down.

About the Author

Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.

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