While we generally don’t recommend dropping insurance coverage, there may be an instance where it makes financial sense: If you have an older vehicle and do not make payments on it, you may want to consider reducing or dropping your comprehensive and collision coverage.
First, a quick reminder of what comprehensive and collision coverages are: Comprehensive pays for things that happen to your insured vehicle other than damages from a collision—a fire, theft, vandalism, or a tree limb falling on it, for example. Collision pays for loss or damages to your insured vehicle due to a collision.
If you are considering dropping your comp/collision, here are some factors to consider:
The value of your vehicle. If your vehicle were a total loss, what would your insurance company pay you? It’s easy to find out the actual cash value (ACV) of your car by using an online tool such as Kelley Blue Book’s “Check My Car’s Value” feature. Remember that the value of your vehicle is lower if is in poor condition (dings, dents, high mileage, worn interior, etc.)
How much you pay for comprehensive and collision. Check your declarations page to find out what portion of your premium comes from comp/collision coverage. One guideline to bear in mind is that if the value of the vehicle is less than 10 times the annual premium, you might consider dropping comp/collision coverage. Example: your car is worth $2,500 and you pay $300 year for coverage.
Your deductible. Common options range from $250-$1,000. If your vehicle is totaled, your insurance company will pay you the value of your vehicle less your deductible. Also factor in what you’ve paid in premium for the year. In an older vehicle, it’s possible for your premium and your deductible to equal more than the value of your car.
Even if your vehicle is older and not worth that much, there are some circumstances in which you may still want to carry comp/collision, including:
- You have teen drivers in the household. (Teens are more likely to be in an accident.)
- You’d have a hard time coming up with enough money to replace your car if it was a total loss. (Even a small payout from your insurance company would help with replacing your vehicle.)
- You live in a hurricane or flood prone area. (In Florida, most of us do!)
- You live or work in an area known for high theft.
We understand economic reality forces all of us to look for ways to save money. At L&M Insurance Group, we do our best to offer a wide variety of cost-effective options, and we’ll gladly discuss with you what coverage you need. Please contact us if you have any questions about your auto insurance policy, or you’d like to get a free quote.