Full coverage or just liability insurance on your vehicles? This is a common dilemma that many car-owners face when one or more cars (or trucks) is no longer financed. It’s great to save hundreds of dollars per year (or thousands) on your car insurance rates. But is the risk worth it? Can you afford to replace a vehicle and start making monthly payments? And when is the best time to delete your comprehensive and collision coverage?
Main Facts To Consider
Your financial situation may be the most important variable. If you’re in a position which you can neither afford to make an additional car payment, or are not able or willing to pay thousands of dollars for repairs, then taking the collision coverage off would not be a good idea. You will be faced with either paying to repair a vehicle with money you don’t have, or spending $200-$600 per month that was not in your budget.
Leasing a new vehicle will cost less and low and no down-payments are always available. Of course, maintenance and repair costs for the term of your lease (assuming between 24 and 42 months) should be very low. Many new lease agreements now offer 100% maintenance coverage for either 24 or 36 months, resulting in a low lease payment as your only out-of-pocket expense. Routine maintenance (oil changes and tire rotation) are often provided at no charge.
Naturally, the age of the vehicle is perhaps the biggest factor. Typically, when the age is between 8 and 10 years old, it’s the right time to look into removing collision and/or comprehensive benefits. At 12 years old and higher, it generally is cost-effective to remove some of the coverage. At the 14-year mark, the value has depreciated to a point that it no longer makes good economic sense to have any physical benefit other than liability coverage (and perhaps fire and theft).
Each Company Offers Different Savings
The amount of savings will vary from one carrier to another. For example, if you own a pair of vehicles that are seven years old, you would be at the point where altering your coverage should be examined. Company A may charge you $1,500 per year for your premium while Company B only charges $1,300. Having additional lines of business with the same carrier may help to reduce the premium.
However, if you place “liability only” on both vehicles, Company A’s rate may change to $900 while Company B’s rate may only reduce to $1,100. We wrote an article about the best car insurance companies in Maryland that may help. All of the companies we listed are very highly-rated. Additional carriers are available for small and large group payroll-deduction.
Thus, in this example, keeping full coverage is beneficial when you are insured with Company A. Yet, when a different set of deductibles is used (on the same vehicles), another carrier now charges a lower premium. And although we didn’t consider any additional companies, there may be up to 10 more carriers that now have better rates. A helpful factor is that insurers are required to post rate-increase request publicly. And although the entire amount may not be approved by the DOI, you will have as much as six months advanced notice.
Do You Have Alternate Transportation?
An important consideration is to create a scenario where you remove collision coverage from your car or truck and you’re involved in an accident that is your fault. Your vehicle is totaled. Of course, the damages to the other party are paid by your insurer and you have no out-of-pocket cost (assuming you have sufficient bodily injury and property damage limits).
However, you are now without transportation on one vehicle. How much of a change in lifestyle will that cause? If you don’t think your household can afford an additional $250-$750 per month for replacement transportation, then you better leave your collision and comprehensive coverage in tact. Otherwise, consider removing them. And revisit this option each year as your financial situation changes.
For a temporary fix to a situation where you need a quick replacement, leasing a vehicle will allow you to avoid a large down-payment and keep your monthly premium in the $200-$350 per month for very reliable options. Maintenance expenses will be nominal and you can walk away from the lease without any obligation (or elect to purchase at the end of the lease). However, you build no equity and are starting from scratch when the least period ends. NOTE: If your residual value is lower than the market value of the vehicle, you may be able to sell the vehicle for a small profit.
Condition And Mileage
A 12-year old vehicle purchased new for $35,000 may still be worth $10,000. It also may be worth less than $5,000. Some of the major determinants of the value are mileage, condition (including exterior body damage and interior), reliability, and demand for that specific make and model. If the vehicle has held its value, it’s worth keeping collision coverage in place. But your own perception of the current market value may differ greatly with the actual Blue or Grey Book value.
For example, a 2002 Toyota Camry (very popular car) in excellent condition with about 80,000 miles could be worth as much as $6,000-$7,000. But the same vehicle in rough condition with $175,000 miles may only be worth about $2,000. That’s a big difference. We use Edmunds to help determine the market value of any vehicle referenced in our website, although there are several other reputable resources.
NOTE: Since the value of your car or truck reduces every year, your premiums may also slightly reduce. But once a vehicle is about 10-15 years old, the reductions in your rate may stop, or perhaps start increasing. Typically, that’s a good time to consider stripping the “full coverage” and calculating the savings with “liability only” coverage. You can also keep fire, theft, and vandalism benefits (only) and delete the collision coverage.
Who Is Driving The Vehicle?
A major determinant in the decision is simply who the principal driver is of the car in question. If it is a teenager or someone with very little practical driving experience, you may wish to hesitate or postpone taking collision coverage off. After all, the risk of an at-fault accident is high.
Conversely, if the vehicle is rarely driven, and the risk of an incident is fairly low, having just liability, medical payments and uninsured motorists protection (only) may result in substantial savings. Yes, there is always the risk that as soon as you delete the collision coverage, you’ll have an accident. That is indeed one of the biggest unknowns!
Will You Be Selling The Vehicle?
This is another big factor. If you are selling the car, there’s a good chance you will not be the owner within the next few months or perhaps longer. In this scenario, since it is such a short period of time, it would not be advisable to change the policy. The extra money you pay for a few months is not worth the risk you would take of not only losing the sale, but getting stuck with a badly damaged car and having to pay for a newer vehicle. In this scenario, leave liability, collision and comprehensive benefits on your vehicle. If subsequently you decide to keep the car (or truck), it may be a better time to consider removing coverage.
You should also be concerned with a potential buyer test-driving the vehicle. In most states, if they have an accident and cause damage, your insurance will be liable and responsible for covered expenses. If you have “just liability,” you’ll have to pay for the repair of the vehicle out of your own pocket before selling it. More than likely, you’ll lose a few potential sales.
Increasing your potential out-of-pocket expense on the most expensive vehicles to insure, will of course, save the most money. Of course, if you have a propensity for hitting other vehicles, then keep low deductibles! The following vehicles should always be considered for increased collision and comprehensive deductibles. For example, increasing deductibles by $250 could easily result in annual savings of $250 or more.
Dodge SRT Viper, BMW 760Li, Nissan GT-R Nismo, BMW M6, Audi A8L, and the Mercedes GL63 AMG.