Your car is still a great running car but it is no longer new so what type of auto insurance coverage should you have on it? Should you only carry the minimum insurance that your state requires or should you continue to carry extra coverages that will protect your car if it is damaged? You ask yourself, when does my car no longer need full coverage on it? Is the car too old to carry full coverage and can I afford to fix my car or buy another car if mine is damaged?
While there is no coverage under car insurance one can just check off for "full coverage" most people refer to having full coverage as meaning you have your state's mandatory coverages (usually Bodily Injury Liability and Property Damage Liability) plus the optional coverages of Comprehensive and Collision placed on your vehicle. Collision and Comprehensive are sometimes called "physical damage" coverages since they indeed cover physical damages done to your vehicle.
These types of physical damage coverages always come with a deductible; which can be as little as $100 or up to $1,000 or more for exotic sports cars. You choose your deductible amount at the inception of your policy for these coverages and most deductibles chosen by individuals are something affordable, usually $250 or $500.
There are several factors to consider when making the decision to no longer carry full coverage on your vehicle. Whatever other reasons there might be for dropping full coverage on your car, one foundational reason would be: do you still have a loan with your car as security?
Most banks, credit unions, and finance companies (basically any lien holder on the motor vehicle) will require you to carry full coverage throughout the life of their loan to you. Depending on the length of time for your loan requirement to be satisfied, you will normally be paying on a loan from three to five, or even in some cases six or seven years. So during this whole time the vehicle you are driving is the lien holder's asset and thus they will want it covered by full coverage.
The next consideration, after your loan is paid off, or if you have no loan because you paid for the car in full up front, is the value of your vehicle. You want to know if your car is worth the price of paying for full coverage on it. A very close fair market value for your automobile can be determined by simply looking on the Internet. Most search engines will take you where you need to go by you typing "car value" and clicking enter.
Just for the sake of this article, let's assume you have what many might consider a fairly "generic" automobile. Assume a 2002 Ford Taurus SEL, a nice family sedan in good shape, but with 98,000 miles on it.
Looking at an Internet site, the value of this vehicle is indicated to be:
- $4,161 trade in value
- $5,376 private party sale
- $6,564 dealer retail.
At this point, you would want to consider; what is the additional premium requirement on my current car insurance policy to continue to carry "physical damage" coverage on this car? Assume the estimated premium would be $200 to $300 per year for that portion of your auto policy.
Now, an important factor will be; what would it cost me to repair this vehicle in case of a collision? Also, what would it cost me to replace this car in case it was stolen, or in case it is a total loss due to a collision with another vehicle or even a single car accident that totaled the vehicle?
All auto repair shops will charge the retail price for parts in a collision repair. So a car worth $4,000 involved in a minor collision may cost $1,000 to $3,000 to repair.
This vehicle, in a major collision that pops both front air bags, would easily be "totaled" by the insurance claims adjuster. If you are carrying physical damage coverage on the car, the insurance company will give you a check for the depreciated value (actual cash value of the vehicle at the time of accident) minus your deductible and you are on your way to finding another vehicle to drive.
If you are not carrying physical damage coverage, then your car is worth salvage value. Typically, a salvage company will give you a check for $100 or so and haul off the car to be junked or sold for parts.
You have to consider several factors in the decision to drop your comprehensive and collision insurance coverage, and in determining the deductible you would carry. If you are in a fender bender, would you want to be "out" $250, or $500? Depending upon the type of vehicle, there is usually a negligible annual premium difference between $250 coverage and $500 coverage, although there is a savings for taking the higher deductible.
Thus to determine if full coverage is needed for your vehicle you have to know if there is a lien holder requiring you to carry it. If so you have to keep full coverage or risk losing your car due to not meeting the terms of your lease or loan. Next find out the value of your car.
If the value of the car is less than your deductible amount then if you car was damaged it would be totaled out and you would not even be able to make a claim so why carry full coverage? If your car is worth a few hundred or thousand dollars above your deductible amount then look at the cost of carrying full coverage on the car and decide if it is financially beneficial to you or if your car was damaged or totaled you could pay for the repairs or buy a similar car on your own.
If your car is worth a considerable amount then it would be unlikely that you would want to stop carrying full coverage since the average person doesn't have thousands of dollars to spend on repairs themselves or could replace a $20,000 car if it was stolen or totaled out and did not have full coverage on it to cover that type of incident.
You should also look at your deductible amount when deciding about full coverage. Is it low enough you could afford to pay it out to your insurer if your car was damaged? Is it high enough to give you a better price on your physical damage coverages?
So now once again ask yourself the question from the beginning of this article - when does my car no longer need full coverage? The answer is when you can afford to repair or replace your vehicle on your own. Without full coverage, you are taking a big risk, the last and biggest question is can you afford not to have it?