Reducing your coverage is an effective way to save money on car insurance. But — and this is a big but — doing so carries great risk. If your car is stolen or damaged by anything else, you get the bill.
One of the most important questions before selecting an auto insurance plan is, “Do I need full coverage?” Sometimes the answer is clear-cut: If full coverage is required because you’re financing a vehicle, you need it. But, on the other hand, if you have an old beater that’s not worth the extra insurance cost, you can skip it.
- A full coverage policy includes liability insurance and the optional coverages of comprehensive and collision.
- Liability covers injuries and damages you cause to other people and their property. Collision covers damage to your car from a crash, and comprehensive covers losses from floods, fires, hurricanes, falling tree limbs, animal strikes, vandalism and theft.
- It doesn’t matter whether you bought the car new or used. However, if you are still making car payments, you will likely be required to carry full coverage insurance.
- If you own your car outright, you will not need to carry insurance beyond the minimum amount required in your state.
Do you need full coverage car insurance?
Full coverage comprises liability, collision and comprehensive insurance. Full coverage is only required when you don’t own the vehicle. If you are still making payments on a purchased or leased car, the lienholder will require you to carry full coverage until you have paid off the loan. The lender wants to protect its investment.
When considering dropping full-coverage insurance, it’s helpful to weigh your risk tolerance. For example, are you comfortable not having coverage if the car was stolen or vandalized? Or, conversely, if you spin out on ice and crash or hit a deer?
The answers depend on your car’s value and the cost of insurance. For example, people might be willing to risk losing a $3,000 car if it meant saving $800 a year in premiums. But what about an $8,000 car, with $600 in premiums and a $500 deductible?
But in many cases, such as when you have paid off a car and it’s starting to age, getting to the answer will require risk assessment and some math. Take the time to do the calculations, though – it could save you thousands of dollars.
First, determine your car’s actual cash value, or ACV. Next, compare the ACV with your annual premium payment.
For example, if you totaled your car and the payout would be $3,000, and you’re paying around $800 a year for comprehensive and collision, it might not be worth it. But if the payout is $15,000, it would be.
What is full coverage auto insurance?
There are two general categories of auto insurance: The first is liability car insurance, which covers injuries and damages you cause to others. CarInsurance.com’s guide on the minimum level of liability insurance required in your state explains this in detail and breaks down the cost in each state.
The second insurance category covers damages to your car that aren’t covered by liability insurance. Also referred to as “optional insurance,” it has two components:
- Collision insurance covers damage to your car from an accident where you were found at fault. It could also cover an accident caused by another driver who does not have enough liability insurance to cover the damage to your car.
- Comprehensive insurance covers losses to your car from incidents other than car crashes, such as floods, fires, hurricanes, falling tree limbs, animal strikes, vandalism and theft.
When should you drop full coverage on your car?
Here are a few questions about whether to keep full coverage car insurance.
- How old is your car? If your vehicle is under 10 years old, purchase comprehensive and collision coverage. You can see each of your state’s average costs in this guide on when to drop collision insurance and comprehensive coverage.
- Can you replace or repair your car if it’s damaged or stolen? If this would be a hardship, keep full insurance to prevent a sudden significant loss. You can check your vehicle’s current value at Kelley Blue Book.
- Would you pay to fix your car if it had a major mechanical issue? If a $1,200 repair isn’t worth it because your car is only worth $3,000, then maybe $600 a year in insurance payments isn’t either.
Another way to decide is to determine if your yearly comprehensive and collision payment equals 10% of your car’s actual cash value. If it does, you may want to consider dropping the coverage.
For example, your annual insurance cost is $800, and your car is worth $5,600. Ten percent of $5,600 is $560. That’s more than your yearly $800 premium, so keeping comprehensive and collision may not make sense.
Do you need full coverage insurance on a new or used car?
It doesn’t matter whether you bought a new car or a used one or bought it from a dealer, a mechanic or a neighbor — if you are still making car payments, you must carry full coverage.
Whether you own your vehicle outright, protecting your assets through full coverage car insurance is a smart bet. However, if you want to keep full coverage insurance but still save money, shop around at renewal time to ensure you get the best rates.
Resources & Methodology
Kelley Blue Book. “My car’s value.” Accessed August 2022.
Kelley Blue Book. “New and used car price values & expert car reviews.” Accessed August 2022.
— Karen Aho contributed to this story.