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Save by dropping extra coverages


Question: What coverages would you recommend I drop off a vehicle that is 10 years old and not worth much? I kept full coverage, rental reimbursement and all that on it all this time because it wasn't paid off, but now it is. I’d like to save money to put down on a new car.

 Answer: It’s always smart to review your car insurance policy when you pay off your vehicle, reconsidering what coverage you should keep, drop, or even add.

Now that your title is in hand and you don't have a lienholder to answer to, you have more freedom about what coverages you can drop to save money.

Liability must stay

Liability insurance is mandated by state laws because it pays if you injure or damage someone else’s property in an auto accident.  Thus, you need to keep it, and any other state required coverages.  If you have higher than state minimums for liability, you shouldn’t lower your coverage just because your car is paid off or not worth much.

Your car, old or new, can cause a lot of damage to other people’s property or cause severe injuries.  This is why higher liability limits, which are less likely to be exceeded in an accident, are what I recommend if you have any real assets to protect.  You can spend just a bit more money and receive a lot more liability coverage.  (See “Extra liability is cheap”)

Collision and comp may be ready to be dropped

Physical damage coverages of collision and comprehensive were required while your vehicle was financed.  Now that you own your car in the free and clear, you can drop these coverages if you want.

Let’s review what each does.

Collision is what covers your vehicle when your vehicle hits or is hit by, another vehicle or object.  If another driver is at fault for your car’s damages, you should be able to make a claim through that party’s property damage liability coverage.  If you’re at fault, then you’d be left to pay if your vehicle was damaged and you didn’t have collision coverage.

Comprehensive covers your vehicle for “other than collision” damages, such as those resulting from a natural event like a hailstorm.  It also covers theft, vandalism, fire and animal strikes.  Without this coverage, you’d pay out-of-pocket if your car were stolen or damaged from one of these perils.

Because your car is older and not worth much, it could be time to drop physical damages. If you did, you could save the money you pay for these coverages to put down on a newer car.

Here are four questions to ask yourself:

  • How much are you paying for comprehensive and collision? What is your deductible?
  • What is the potential insurance payout for your vehicle? (Subtract your deductible amount from the cash value of your car.) 
  • Do you have substantial savings in the bank?
  • If your vehicle had a major mechanical issue, would you pay to repair it or get rid of it? 

Only you can decide how comfortable you are with dropping coverage. Here are three instances where it makes sense:

  • If you have savings enough to buy another car equivalent to the one you currently have
  • If you wouldn't shell out money for a repair that cost as much as your premiums and deductible added together
  • If your premiums for comp and collision exceed 10 percent of the potential payout

If you decide to keep collision or comprehensive, then see about raising your deductibles to save until you’re ready to drop the coverages completely.  (See "How much will higher deductibles save you?")

Cut out add-on coverages?

If you drop collision and comprehensive from your car insurance policy, then it's likely time to cut out other “extra” coverages as well.

Both rental reimbursement and towing and labor coverage are add-on coverages that insurers offer.  However, most car insurance companies require you to have collision and/or comprehensive to carry these coverages on your policy. Thus, if you drop comp and collision, you most likely need to drop these as well.

And even if you keep collision and comprehensive, I’d recommend cutting out rental reimbursement if you have another vehicle at your disposal to use if yours is out of commission.

Because your vehicle is older, it’s likely worth the cost of having some sort of emergency roadside service on it that could cover at least towing if it breaks down.  This may be through your insurance company or one you purchase from an outside source, such as an auto club.

In the end, what coverages you need on your car insurance policy is specific to your own personal needs. Besides cutting coverages or raising deductibles, the best way to save is to compare car insurance rates with multiple carriers.  You can save hundreds, if not much more, by car insurance comparison shopping.

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