When Should You Drop Full Coverage Car Insurance?
It might be time to drop your full coverage car insurance if your car is older, lower in value, or rarely driven. Drivers looking to buy a new car may also consider removing the additional coverage in order to save money for their upcoming purchase. If you have a car loan, however, your lender may require full coverage car insurance, so be sure to check before making any changes.
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Are You Overpaying To Insure Your Car? — Making the Decision to Drop Full Coverage Insurance
In many cases, full coverage insurance is a financially smart decision for vehicle owners. Lenders and dealerships often require proof of liability, comprehensive, and collision coverage before drivers can leave the lot with their new car.
Insurance rates, however, can change from year to year, and your full coverage insurance may get more expensive. What started as a reasonable price for coverage could lead to you paying too much for your policy. Read more to understand when you can and should drop your full coverage insurance policy.
What Does Full Coverage Car Insurance Include?
Generally speaking, a full coverage policy is a policy that includes liability, comprehensive, and collision insurance. It provides coverage for many situations that could occur while driving; however, no insurance policy will offer coverage for every possible scenario. While most states require all drivers to carry liability coverage, drivers can add comprehensive and collision coverage at their discretion.
Bodily Injury Liability and Property Damage Liability
Bodily injury liability is required in every state but Florida, and property damage liability is required across the U.S. If a driver causes an accident and the other person needs medical attention or repairs to their property, this insurance would take care of the costs.
Each state carries its minimum requirements for coverage amounts. Depending on where you live, your policy may cover the following amounts:
- Bodily Injury Coverage per person: Between $5,000-$50,000
- Bodily Injury Coverage per incident: Between $10,000-$100,000
- Property Damage per incident: Between $5,000-$50,000
As you can see, the coverage possibilities are vast, which is why you should speak to your insurance agent to see what your policy currently covers and what other options you have.
Comprehensive Coverage
Comprehensive coverage kicks in if the vehicle is damaged by something other than a collision with another car or item. It also covers the car if it’s vandalized, stolen, crushed, hit by an animal, or other actions that result in damage.
Drivers wishing to enact this portion of their coverage must pay their deductible, which they preselected when they signed up. Deductibles for comprehensive coverage usually range between $100-$1,000 but can be higher in some cases.
Collision Coverage
Collision coverage covers incidents where you collide with another vehicle or object, regardless of who is at fault for the accident. The deductibles for collision coverage typically ranges between $0-$1,000. Collision coverage does have a limit, which is usually the cash value of your vehicle.
Collision coverage is optional if your car is paid off, but most lenders and dealerships will require you have it.
Uninsured or Underinsured Motorist Coverage
In a typical car accident, you’d file a claim with the at-fault party’s insurance company and they would cover the expense. However, if you are in an accident with a person who does not have insurance or is underinsured, this coverage can fill in that gap. Uninsured or underinsured motorist coverage keeps you from paying out of pocket for an accident you didn’t cause.
Many states require uninsured motorist coverage at minimum. Generally, this type of coverage has a lower premium than comprehensive and collision.
Personal Injury Protection Coverage (PIP)
Personal injury protection, also called no-fault insurance, covers healthcare expenses for the driver and passengers following an accident, no matter who was at fault. Some PIP policies can also cover lost wages and even funeral costs. PIP is required in 12 states, but is not offered at all in many other states. In the states where PIP is not offered, medical payments coverage is offered instead.
Gap Insurance
Gap insurance is optional coverage that can help pay off your car loan in the event your car is stolen or totaled and you owe more than what the car is worth. Your car’s value depreciates over time, which can create situations in which the money you get for your totaled car is not enough to pay back your loan. That’s where gap insurance comes in.
The Cost of Full Coverage Car Insurance
Insurance companies may look at a person’s driving history, location, credit score, type of vehicle, and other factors when considering how much to charge for car insurance. A full coverage insurance policy will cost you on average $140-$170.
If you’re not required to carry full coverage car insurance, and you’re trying to determine whether you should drop it, consider the 10% rule. The 10% rule states that drivers should reevaluate their coverage if their monthly premium exceeds 10% of the vehicle’s value.
How To Drop Full Coverage Car Insurance
You should call your insurance agent to find out what exact steps to take to remove your full coverage car insurance. Some insurance companies require the requests in writing before removing it from a policy. Others can process the changes over the phone. Either way, the agent will be able to help you drop your full coverage car insurance.
If you have a car loan, it’s likely that your finance companies require drivers to maintain full coverage. Once your loan is fully paid off, you can change your car insurance as you see fit.
Should You Drop Full Coverage Car Insurance?
Drivers still paying off their car notes must keep full coverage until their vehicles are paid off. However, there are some circumstances when it might be in the driver’s best interest to remove comprehensive and collision coverage from an auto policy.
Advantages
Beyond the obligation to carry full coverage car insurance if you have a car loan, or you lease a car, there are advantages to having the policy.
- You have liability protection if an accident you cause results in a lawsuit.
- You have coverage for your car if it’s stolen, vandalized, or totaled.
- If you live in a place with extreme weather events, any damage to your car will be covered.
- You can feel confident that most situations will be covered by your policy.
Disadvantages
Carrying full coverage insurance can have its disadvantages.
- Comprehensive and collision coverage can be expensive for drivers with bad driving records.
- People with low credit or who live in a high-risk area may face higher costs.
- Carrying full coverage on an older car or a car that you rarely drive might not be worth the monthly premium you pay.
When To Keep Full Coverage Car Insurance
There are certain times when having full coverage is a requirement based on the paperwork you signed to acquire the car. Beyond that, there are situations where keeping full coverage on your car may make more financial sense than dropping it.
When You Have a New Car
Carrying full coverage is a wise decision for drivers with new cars. Even if the driver buys the car with cash, drivers should have full coverage to receive some return on their investment if the car is damaged or totaled in an accident.
When You Have an Expensive Car
An expensive car can be a magnet for negative attention and trouble, even if it’s rarely driven. With a full coverage insurance policy, the driver will only have to pay their premium and deductible while the insurance company pays to repair the vehicle if anything goes wrong.
When Repairs May Be Expensive
Cars with newer technology or vintage cars might not be as expensive as the flashy cars of today. But the parts to fix them can be exceptionally difficult to find or expensive to produce if they’re damaged and need replacement.
When It’s Required By Your Lender
Lenders require drivers to carry full coverage insurance when they agree to finance their new vehicles. Lenders want a way to protect their investment if the driver damages or totals the car before the driver pays it off.
Alternatives to Dropping Full Coverage Car Insurance
If you’re thinking about dropping your full coverage car insurance because of the cost, there are alternatives to consider. You can drop some of your coverage, shop around for a better price, or try to bundle your auto insurance with another policy.
Change your deductible
Drivers who wish to save money while still carrying full coverage insurance can ask their agent about raising their deductible in order to lower their monthly premiums. You will have to pay the higher deductible out of pocket if your car is damaged, but this could be an option if you do not drive very often.
Switch to a policy with a better rate
You can always shop around if you feel like your coverage could be cheaper. Companies are constantly evaluating their rates to ensure they’re competitive. A policy that was out of reach before could be more affordable now.
Ask about discounts
Insurance companies always adjust their discounts based on the type of client they want to attract. You may qualify for savings that you’re currently not taking advantage of.
Bundle policies
Insurance companies want drivers to have as many services with them as possible. That’s why bundling an auto policy with a home or renter’s policy can save you between 5-25% on your overall insurance.
All in All
In the end, the decision to keep or drop full coverage is up to you. Comprehensive and collision coverage have their perks—but if you’re looking to save money or paying full coverage on a car you rarely drive, it may be time for a policy change.
Contact your insurance agents for more information and to determine your options. And, don’t be afraid to shop around for a better price.