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? Is state-minimum coverage enough? In most states, liability coverage or a financial responsibility bond is required. Do you have an emergency cash fund that can pay the deductible and other related expenses?
And when is the best time to remove your comprehensive and collision coverage? Which deductibles are the most cost-effective? Although full coverage protects against a wide variety of risks, your total out-of-pocket costs may be higher, depending upon the drivers and vehicles in your household. Liability is legally required in all states. Collision and comprehensive benefits are not. In most states, the minimum required bodily injury liability limits are at least $25,000 per person and $50,000 per accident, although higher coverage is recommended.
If you remove full coverage from your vehicle, collision and comprehensive benefits may be returned, assuming there has been no damage to the car or truck. Selecting “comprehensive only” is also an option, especially for older vehicles that are regularly driven. The most common comprehensive deductibles are $0, $50, and $100. The most popular collision deductibles are $250, $500, and $1,000. Luxury and commercial vehicles often have a $2,500 collision deductible. Commercial fleet or self-insured policies often include higher deductibles to reduce costs.
Important 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 removing collision coverage 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. The number of available vehicles in the household also must be considered, since an alternative mode of transportation may not be available.
The availability of Uber, Lyft, and other ride-sharing companies help, but does not completely solve the problem. Although occasional driving issues are solved, these types of companies can not offer distance-driving needs. Hiring a driver or a limousine service also will not likely eliminate your concerns. However, if driving privileges are temporarily or permanently revoked, these options will need to be considered. Note: Uber also is heavily involved in food and meal delivery, and has recently increased their share in the prescription delivery market.
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. Most major repairs are covered under the standard 36-month warranty, and extensions are offered on most leases.
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).
Low-mileage vehicles should be considered on an individual basis. Despite the age of the vehicle, much of the resale value may have been retained because of the lack of driving and demand for this type of car or truck. Also, especially with older vehicles, the collision and comprehensive deductibles do no have to be identical. Often, the collision deductible is much higher than the comprehensive deductible.
Antique and custom vehicles may be able to be insured for their market value. An appraisal will be needed, but the cost of coverage is typically less than a car or truck. The wear and tear will impact your choices. Vehicles in poor condition only need liability protection. However, if the car or truck can not pass a required inspection, that vehicle will not be allowed to be driven, and liability coverage can be removed (assuming the vehicle never becomes drivable again).
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. Several customer-loyalty discounts are offered by most carriers that can reduce the premium up to 20%. Group payroll-deduction (if available) may provide additional savings.
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. Underwriting guidelines are often more relaxed with employer-provided policies. Seniors with more than one at-fault accident in the last three years may be more susceptible to cancellations.
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.
Carriers that often offer low premiums for vehicles with full coverage (collision and comprehensive coverage) include Progressive, Nationwide, Geico, Allstate, Penn National, Donegal, and Esurance. Carriers with low rates for vehicles with only basic liability coverage include Allstate, Erie, Progressive, Nationwide, and Farmers.
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. Leasing a vehicle is often less expensive than purchasing an older financed vehicle, that also requires full coverage.
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. Accurate estimates are provided free online.
For example, a 2007 Toyota Camry (very popular older car) in excellent condition with about 100,000 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 $1,000. 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. Towing and substitute transportation benefits are often packed with 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. If there are multiple inexperienced drivers in the household, more than one vehicle will be impacted.
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. There is always the risk that as soon as you delete the collision coverage, you’ll have an accident. However, if the other driver is at fault, their coverage will pay for the repair to your vehicle.
If you are currently covered with a company that bases its rates on the number of miles the vehicle is driven, the cost of keeping collision coverage may be nominal. This would occur if the number of miles driven is less than 3,000 and especially if an additional vehicle is in the household.
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. The cost of collision and comprehensive coverage can be substantial over a period of 5-10 years (or longer). If a youthful driver is present in the household, the cost will be higher. The existence of a high-risk driver in the household will also raise the premium. Although a driver-exclusion may be available, the risk of the driver operating your vehicles is a valid underwriting concern of the carrier.
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 if the buyer can’t test-drive the vehicle. But we still recommend it.
How Quickly Do Vehicles Lose Their Value?
A new car or truck instantly depreciates once it is driven by the new owner. The percentage is approximately 6%-12%. For the next four years, the average depreciation is approximately 12%-22% per year. If you purchase a used vehicle, the rate of depreciation will be slower. Higher-value vehicles are more expensive to insure, but retaining collision coverage is a more popular option. Deductibles of $1,000 and above are more common with luxury vehicles.
Vehicles that appreciate are typically antique or classic. Special policies are offered for these types of cars (and trucks) that allow you to insure for the market value of the vehicle. An appraisal may be needed. Classic car rates are typically about 35% less than standard rates. Coverage is guaranteed to match the value of the vehicle. You can utilize several reputable resources to determine the value of your vehicle. Examples are the Kelley Blue Book and N.A.D.A.
You Can Keep Comprehensive Coverage Without Collision Coverage
Higher-mileage vehicles that are more than 10 years old are popular options for removing collision and retaining comprehensive benefits. Your premium will reduce, and the vehicle can still be repaired from an accident that is not your fault (assuming the other party has coverage). Common claims that are covered under the comprehensive section of the policy include falling objects, fire, theft, vandalism, weather damage, and many animal-damage incidents.
Savings will vary, depending upon the age and value of the car or truck. Vehicles that are financed or leased will not be able to remove this coverage. The most cost-effective situations are when the vehicle is worth at least $10,000. Glass-breakage may be covered at 100%, regardless of your deductible. Note: Keeping full coverage on a vehicle may allow you to include several free benefits, including towing, small amounts of life insurance, or accidental medical coverage.
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 (below) 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.