If you drive an older car and you are looking to save money on your auto insurance, one option to consider is dropping your collision and comprehensive coverage. Collision insurance covers physical damage to your car resulting from an accident. Comprehensive coverage covers anything else that happens to your car such as theft, windshield damage, or hitting an animal. Both of these coverages include a deductible that needs to be paid first, before any repairs can be made to your car.
Typically, collision and comprehensive coverage combined equal about 30% to 40% of your total auto premium. So, there are significant savings available, if you are in a position to cancel these coverages. Because we love our cars, most people will overestimate the value of their car. However, there definitely comes a point in the age of most every car where it makes sense to drop collision and/or comprehensive coverage.
Replacement Value Compared To Premium Cost
First, you need to have an accurate understanding of the market value of your car. Use Kelley Blue Book (www.kbb.com) or www.edmunds.com to get an approximate value. Subtract your deductible from this value to find out your replacement value, which is the maximum amount you should expect to receive from a collision or comprehensive claim.
A recent Wall Street Journal article suggested that if the replacement value of your car is less than ten times the annual premium that you are paying for collision and comprehensive coverage, you should strongly consider cancelling that coverage. For example, a 2000 Honda Accord LX has a Kelley Blue Book Value of $2500. If you have a $500 deductible and you are paying over $200 annually for your comprehensive and collision coverage, you should consider cancelling.
Examine Your Personal Situation
Next, you need to evaluate what you can afford out of pocket in case of an accident. You might be in a situation that any settlement from your insurance company may be exactly what you need to replace a totaled car. However, if you’re financially prepared to afford more out of pocket expense, the decision to cancel collision and comprehensive coverage has less of an impact.
Besides the financial impact, there are a few other things to consider before making this decision.
- Young drivers – If you have young drivers on your policy, you probably are at a higher risk of using your collision coverage. This may be a reason that you would NOT want to cancel collision.
- High crime or flood area – Collision coverage is more expensive than comprehensive coverage. So, if you live/work in an area where flood, vandalism, or theft is a greater concern, you might want to consider cancelling collision but keeping comprehensive.
- Rental car reimbursement – You may need to get a rental car if your car is unavailable to drive due to damage from an accident. The rental car reimbursement option on your auto policy will cover some of this cost. However, most policies do not offer this coverage without collision coverage. So, you must consider this potential expense into your decision.
- Car loan requirements – Some car loans require that you carry collision coverage. Make sure you are aware of this before cancelling collision coverage.
Uninsured Motorist Property Damage
Finally, I recommend that if you decide to cancel your collision coverage, you should automatically add Uninsured Motorist Property Damage (UMPD) to your policy. By dropping collision coverage, you are taking on the risk of repairing or replacing your car if you are at fault in an accident. If you are in an accident which is caused by the other driver, you can always file a claim on their insurance policy to cover your loss. UMPD is a very inexpensive coverage that insures your car if it is hit by an uninsured driver. Usually the cost of this coverage is so low, that it doesn’t make any sense not to include it if you have cancelled your collision coverage.
At Goggin Insurance, we strive to provide you with sound policy advice. We want all of our clients and potential clients to understand all of their options, so they can make informed decisions. If you would like to discuss your collision and comprehensive coverage needs, or any other insurance questions; feel free to contact us at (844) GOGGIN-1 or email us at firstname.lastname@example.org.