When to Drop Comprehensive and Collision Auto Insurance

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  • When to Drop Comprehensive and Collision Auto Insurance

If you tend to drive your vehicle until the wheels fall off, or at least until the cost of maintenance supersedes the savings of buying a new vehicle, you may be wondering when to drop comprehensive and collision coverage.

While there’s no hard-and-fast rule that dictates when you should drop your coverage, there are two stipulations that prevent you from doing so: if you lease or have a loan balance on your vehicle. If either of those scenarios applies to you, you’ll need to keep full coverage.

However, if the former scenarios don’t apply to you, there’s a chance you could save quite a bit of money if you drop comprehensive or collision coverage on your vehicle. First, let’s take a look at the specifics of each coverage. Then we’ll dig down into the root of the question.

What Is Collision Insurance?

Collision insurance coverage helps pay for damage to your vehicle if you’re at-fault in an accident or get into a fender bender with an object — like the neighbor’s pesky mailbox you hadn’t noticed for 16 years before getting behind the wheel.

If you own your vehicle outright, meaning you don’t owe money on a loan and aren’t leasing, collision coverage is optional. However, if either of those scenarios apply to you, you’ll be required to purchase collision coverage to protect the vehicle.

What Is Comprehensive Insurance?

Comprehensive insurance coverage is also known as “parked coverage” because it protects your vehicle from certain scenarios when it’s not moving. This coverage helps pay for damage to your vehicle for things like hurricane damage, car theft, hail damage and other kinds of weather-related events.

The same scenarios of car ownership apply to comprehensive coverage, so only those who own their car outright don’t need to keep this coverage.

However, adding comprehensive coverage to your policy is typically much more affordable than collision coverage because it doesn’t cover moving accidents, which account for the large majority of auto accidents.

Do I Need Comprehensive and Collision?

You’re only required to maintain comprehensive and collision coverage on a vehicle that is financed (in which you still owe money on the loan) or a vehicle that is leased. In both of those instances, you technically don’t own the car outright, so your lender will require you to protect their property with sufficient auto insurance.

If you own the car outright and aren’t leasing, you’re not required to carry full coverage auto insurance, which incorporates elements of comprehensive and collision coverage.

When Should I Drop Comprehensive and Collision Insurance?

The decision to drop comprehensive and collision coverage is on a per-person basis. But we’ve included three life events that are strong indicators as to whether you’re ready or not ready to drop coverage. Many people will be comfortable dropping coverage when they meet these three events and many people may be comfortable dropping coverage before they meet the following three life events.

1. When the Cost of Car Insurance Nearly Meets or Exceeds Your Car’s Value

If your car is 10 years old, has 120,000 miles, is worth $1,500 on the private market and you still pay $750 per year for car insurance, which includes comprehensive and collision coverage, you may want to drop both comprehensive and collision coverage.

Whether or not the car’s age or mileage applies to you, your car’s value compared to the cost of auto insurance can be used as a simple rule of thumb to determine whether it’s time to drop coverage. A general rule of thumb is that people paying 50% percent of their car’s total value in yearly premiums should be comfortable dropping comprehensive and collision coverage.

Even if your car is worth $3,000 on the private market (which typically dictates the estimated payout from an insurance company if the car is totaled), your yearly auto insurance shouldn’t eclipse 33% of that price. So if you’re paying $1,000 per year for full coverage, it’s probably time to drop your policy down to liability only.

2. You’re Willing and Able to Pay for Repairs Out of Your Own Pocket

The second life event that’s a clear indicator you should drop comprehensive and collision coverage is if you have a good amount of savings and you feel comfortable paying for repairs out of your own pocket if your car is totaled. While it may make more sense to purchase a new vehicle instead of paying for repairs on a low-value totaled car, this can be used as a general rule of thumb.

Let’s look at the math. If your car is worth $3,000 and it’s totaled, your car insurance company is only going to pay you a maximum of $3,000 to replace your vehicle. If you have enough money in savings to comfortably afford a down payment on a newer vehicle, you’re likely in a good place to drop full coverage insurance.

Think about it this way. If you pay $1,000 per year for full coverage insurance and your car lasts three more years, you’ve just spent the down payment of your next vehicle and you’ll never get that money back. However, if you dropped your coverage to liability only, which averages $500 per year, you’d still have $1,500 saved up for your next down payment.

3. You Don’t Carry a Loan or Lease on the Vehicle

If you’ve made it through the first two life events and are thinking about dropping full coverage, the third life event is a non-negotiator. You must own your vehicle outright to have the ability to drop comprehensive and collision coverage.

The reason for this is that a leased vehicle or a vehicle that still carries a loan is technically not owned by you. They’re owned by the lender until the loan is paid in full. Leased vehicles can be purchased after the lease has finished, but you’ll still need to pay off the loan to drop full coverage.

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The editorial content on Clovered’s website is meant to be informational material and should not be considered legal advice.

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