Full Coverage Auto Insurance: When To Drop Or Keep It

The length of time you should keep full-coverage auto insurance depends on several factors, including the type of car you drive, your financial situation, and the insurance company and state you're in. Generally, it's recommended to keep full-coverage auto insurance if you're still making payments on your vehicle or if it's a newer, rare, or expensive car. On the other hand, if your car is old, has high mileage, or is worth less than the cost of your insurance policy, you may consider dropping full coverage. Ultimately, you need to weigh your needs, budget, and personal risk factors to determine the right amount of insurance coverage for your vehicle.

When to drop full coverage

Full coverage auto insurance is a combination of liability, collision, and comprehensive insurance. It covers you, other drivers, and your vehicles in the event of a collision. It also covers damage from non-collision incidents such as weather events, encounters with wildlife, and vandalism. However, there are times when it makes sense to drop full coverage.

The cost of insurance equals or exceeds the potential payout

If the cost of your insurance is more than what you would receive if you needed to repair or replace your car, then it may be time to drop full coverage. This is more likely to be the case if your car is old, has high mileage, or is paid off.

You have a large emergency fund

If you have savings that you could use to repair or replace your car in the event of an accident, then you may not need full coverage. This is especially true if you rarely drive your car, as you are statistically less likely to be in an accident.

Your car isn't worth much

If your car is worth less than your comprehensive coverage deductible, then this type of insurance may not be worth the cost.

You can afford to pay for repairs or replace your car out of pocket

If you can afford to cover the cost of repairs or a new car without insurance, then you may not need full coverage. This is more likely to be the case if you have an older car that is not worth much.

Your car is garaged or otherwise protected

If you keep your car in a garage or other protected area, you may not need comprehensive coverage, as your car is less likely to be stolen or damaged.

You plan to replace your car soon

If you are planning to replace your car in the near future, you may not need to keep full coverage, especially comprehensive coverage. This is because comprehensive coverage pays to repair or replace your car if it is stolen or damaged by something other than a collision.

It's important to remember that the decision to drop full coverage should be made based on your specific situation. You need to assess your financial situation, the value of your car, and your risk level. Additionally, different states have different requirements for car insurance, so be sure to check the laws in your state before making any changes to your policy.

Full coverage for new, rare or expensive cars

Full coverage auto insurance is a good idea for new, rare, or expensive cars. It is a combination of liability, collision, and comprehensive insurance. It covers you and the other driver in the event of an accident, including medical and vehicle costs, and meets your state's insurance requirements. It also provides coverage from theft, vandalism, natural disasters, and fire.

New cars

If you have a new car, it is recommended to keep full coverage even if you bought it without a loan. This protects your investment and prevents a large out-of-pocket expense if an accident happens.

Rare cars

Classic car insurance is available for cars that are considered rare, antique, or vintage. This type of insurance offers agreed value coverage, meaning the insurance company agrees on the value of your car based on an appraisal. It also offers specialised coverages, such as displaying your vehicle at car shows and expert repair of exotic vehicles. Mileage limits and eligibility requirements may apply.

Expensive cars

Even if your car is not new, certain makes and models retain their value. Full coverage can help you avoid spending a lot of money on repairs or replacement if your expensive car is damaged or stolen.

When to drop full coverage

You may want to consider dropping full coverage if your car is over 10 years old, or if the value of your car is lower than your comprehensive coverage deductible.

Full coverage for older cars

The decision to keep full coverage on an older car depends on several factors. Firstly, consider the age of your car. While there is no definitive age at which a car is considered "old", full coverage may not be worth the cost for vehicles over ten years old. This is because the value of a car depreciates quickly as it ages, while insurance costs decrease slowly, so the insurance costs may outweigh the benefits for older cars.

Another factor to consider is the value of your car. If your car is worth less than the cost of your full-coverage policy, it may be more cost-effective to switch to liability-only insurance or a minimum coverage policy. You can assess your car's value using resources like Kelley Blue Book.

Additionally, if you have a loan on your car, your lender may require you to maintain full coverage, or at least comprehensive and collision coverage, until the loan is paid off. This is to protect their investment.

The make and model of your car can also impact the cost of insurance. Some older cars may have expensive parts that are hard to find, making repairs costly. Certain makes and models may also hold their value better than others, which can affect insurance rates.

Finally, your financial situation and risk tolerance should be considered. If you can afford to repair or replace your older car without insurance, you may opt for liability-only or minimum coverage. However, if you prefer the peace of mind that comes with full coverage, it may be worth keeping, even if it's not the most cost-effective option.

In summary, while there is no one-size-fits-all answer, carefully weighing these factors can help you make an informed decision about whether to keep full coverage on your older car.

Cost-benefit analysis

Keeping full-coverage auto insurance can be a tricky decision to make. While it offers comprehensive protection, it can also be costly. To determine whether maintaining full coverage is worthwhile, a cost-benefit analysis is necessary. This analysis will involve several steps, including understanding the value of your vehicle, estimating potential losses, comparing insurance premiums and deductibles, and assessing personal risk factors.

Firstly, it is important to know how much your vehicle is worth. This can be done by using tools like Kelley Blue Book, which provides an accurate estimate of your car's current market value based on factors such as make, model, year, and condition. It is recommended to regularly update this assessment as your car's value depreciates over time.

Next, consider what would happen if your vehicle was stolen or damaged. Estimate the financial impact on your budget and whether you could afford repairs, a total loss, or theft. Research common repair costs and the total loss value for your specific car model. It is also helpful to understand your area's risk factors, such as theft and natural disaster rates, to better estimate potential losses.

The third step is to compare insurance premiums from multiple providers. Obtaining quotes from at least three different companies will allow you to find the most cost-effective option for the coverage you need. Ensure that each quote is based on the same coverage limits and deductibles for an accurate comparison.

The fourth step is to evaluate deductibles. Typically, a lower premium cost is associated with a higher deductible. Analyze how different deductible levels will impact your potential out-of-pocket costs in the event of a claim. Choose a deductible amount that you can comfortably afford.

The fifth step is to analyze personal risk factors. Insurance companies assess risk based on factors such as driving frequency, history, age, gender, vehicle type, and location. If you drive frequently or park in high-risk areas, full coverage may be more necessary. Adjust your coverage as your driving habits or lifestyle change.

The sixth step is to review financing requirements. If you have a car loan or lease, you may be required to carry full coverage until the loan is paid off or the lease ends. Check your financing or leasing contract for insurance clauses to ensure you comply with the requirements.

Finally, make an informed decision by weighing the total cost of premiums against the benefits of full coverage. Consider your budget, the value of your vehicle, and your comfort level with potential out-of-pocket expenses. Remember to reassess your insurance needs periodically, especially after significant life changes or vehicle upgrades.

While full coverage auto insurance offers extensive protection, it is important to weigh the costs and benefits to ensure it aligns with your financial situation and risk tolerance.

Full coverage for leased or financed cars

If you lease or finance your vehicle, your lender or leasing company will probably require you to have both comprehensive and collision insurance under the terms of your contract. This is to protect their investment.

Leasing companies will typically require you to carry physical damage coverage for your leased vehicle, commonly known as comprehensive and collision coverage. Comprehensive coverage pays for damage caused by events outside of your control, including theft, vandalism, fire, and animal accidents. Collision coverage pays for damage caused in an accident with another vehicle or object.

Many lenders or leasing companies will also require you to carry higher bodily injury liability limits, such as $100,000 per person and $300,000 per accident. You may also need a set amount of property damage liability coverage.

If you've financed your car, you'll most likely be required to take out full coverage. However, once you've paid off your car loan, you can drop full coverage in favour of minimal liability insurance. This is something to consider if your car depreciates to the point that it's worth less than ten times your monthly premium.

If you're leasing a car, you'll have to keep full coverage for the duration of your lease.

Frequently asked questions