Full Coverage Auto Insurance: When To Cancel And Save

When to cancel full coverage auto insurance is a tricky question and depends on several factors. Full coverage auto insurance is a combination of liability, collision, and comprehensive insurance. It covers the cost of repairs or replacement of your vehicle in the event of an accident, theft, or damage from natural disasters. While it is a valuable protection plan, there are instances when you may want to reconsider paying for full coverage. For instance, if the cost of insurance equals or exceeds the potential payout, you may want to opt-out. Similarly, if you have a large emergency fund and can afford to pay for repairs out of pocket, full coverage may not be necessary. Other factors to consider include the age and value of your car, the number of miles driven, and whether you can afford to replace it if it's damaged. A good rule of thumb is to drop full coverage when your annual full-coverage payment equals 10% or more of your car's value.

When you have a large emergency fund

Having a large emergency fund can be a good reason to cancel full-coverage auto insurance. If you have a substantial amount of savings, you may be able to self-insure by paying for any repairs or a replacement car out of pocket. This can be a good option if the cost of your insurance is high relative to the value of your car.

However, it's important to remember that full-coverage insurance offers protection against a range of risks, including animal collisions, falling objects, weather damage, fire, theft, and vandalism. If you're comfortable taking on the financial burden of these risks yourself, then cancelling full-coverage insurance and relying on your emergency fund could be a sensible option.

Before making any decisions, it's crucial to carefully assess your financial situation and risk tolerance. Calculate the value of your car, the cost of repairs or replacement, and the likelihood of needing to make a claim. Additionally, consider the impact of a lapse in coverage on your future insurance rates and the potential loss of discounts.

It's also essential to ensure that you have sufficient funds to cover any potential expenses fully. While you may have a large emergency fund, evaluate whether using a significant portion of it for car repairs or replacement would leave you in a financially vulnerable position.

Remember that different states have varying requirements for auto insurance, so be sure to check the regulations in your area before making any changes to your policy.

When your car is old or has high mileage

If your car is old or has high mileage, it may not be worth keeping full coverage. Full coverage is typically comprised of liability, collision, and comprehensive insurance. Liability insurance covers costs that arise from accidents you are responsible for, such as medical expenses and legal fees. Collision insurance covers the repair or replacement of your car if you are in an accident with another vehicle or a stationary object. Comprehensive insurance covers damage to your car due to causes other than collision, such as vandalism, extreme weather, or falling objects.

As your car ages, the cost of full coverage insurance may become higher than the value of the car itself. This is because cars depreciate in value over time, especially in the first year of ownership. Thus, it is generally recommended to switch to liability-only insurance when your car is about 10 years old. At this point, the cost of full coverage may be more than the payout you would receive if your car needs to be repaired or replaced.

However, there are some reasons you may want to keep full coverage on an older car. If your car is expensive to repair or has high-value parts, full coverage can help you save money in the event of damage or theft. Additionally, if you live in an area with a lot of uninsured drivers, it may be worth keeping full coverage for added protection.

Before making any changes to your insurance coverage, it is important to carefully consider your financial situation and the potential risks involved. It is also recommended to have a new insurance policy in place before cancelling your current one to avoid a lapse in coverage, which could result in higher rates or legal consequences.

When you can afford repairs or replacement

When deciding whether to drop full coverage auto insurance, it's important to consider your financial situation and whether you could afford repairs or a replacement for your vehicle. If you have enough savings to cover the cost of repairs or a new car, then you may want to consider dropping 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 an accident, regardless of who is at fault. It also includes protection from theft, vandalism, natural disasters, and collisions with animals. While it offers comprehensive protection, full coverage insurance can be costly, and you may want to consider dropping it if you can comfortably cover the costs of potential repairs or a replacement.

Before making a decision, it's essential to assess your financial situation and determine if you have sufficient savings to cover unexpected expenses. Ask yourself: can you afford to pay for repairs or a new car without insurance? If the answer is yes, then you may be in a position to drop full coverage.

Another factor to consider is the age and value of your vehicle. Older cars with high mileage may not be worth the cost of repairs, and you may prefer to save for a new car instead of paying for extra insurance. Additionally, if the cost of your insurance is approaching or exceeding 10% of your car's value, it may be a good time to consider dropping full coverage.

It's also worth noting that different states have different requirements for auto insurance coverage, so be sure to check the regulations in your area before making any changes to your policy.

Ultimately, the decision to drop full coverage auto insurance depends on your financial situation, the value of your vehicle, and your comfort level with potential risks. If you feel confident in your ability to cover repairs or a replacement, then you may benefit from the cost savings of dropping full coverage.

When the cost of insurance equals the potential payout

A good rule of thumb is to consider the value of your car and compare it to the cost of insurance. If your annual full-coverage payment is close to or exceeds 10% of your car's value, it's generally recommended to drop the full coverage. For example, if your car is valued at $5,000 and you're paying around $800 a year for comprehensive and collision insurance, the cost may outweigh the benefits.

However, it's important to assess your financial situation and comfort level with risk. If you don't have sufficient savings to cover potential repairs or the cost of replacing your vehicle, maintaining full coverage may be a safer option.

Additionally, consider the likelihood of needing repairs. If your car is older and has a higher risk of breaking down or being involved in an accident, the peace of mind that comes with full coverage may be worth more than the monetary cost of insurance.

Ultimately, the decision to cancel full coverage auto insurance should be based on a careful evaluation of your car's value, your financial situation, and your personal preferences for risk and protection.

When you have paid off your loan

Once you've paid off your loan, you can consider cancelling your full-coverage auto insurance. However, it's important to evaluate your situation and determine whether switching to liability coverage is the right choice for you. Here are some things to keep in mind:

Inform Your Insurance Company

It is recommended to notify your insurance company that you have paid off your loan. This is to remove the lienholder from your policy. By doing so, if your vehicle is totalled in an accident and you maintain comprehensive and collision (full) coverage, the payout from the insurance company will go directly to you instead of your bank. Even if you forget to remove the lienholder and your car is totalled, the bank that held your loan will simply forward the funds to you.

You May Not Save Money

Simply owning your vehicle may not affect the rate you pay. However, it gives you more coverage options. When financing a vehicle, lenders usually require additional coverage such as lease/loan payoff, comprehensive, and collision coverage, as well as low deductibles, which can make your premium more expensive. When you own your vehicle, you have the flexibility to choose the type and amount of coverage you want.

Consider the Value of Your Vehicle

If your vehicle is worth less than $4,000, it might be a good idea to drop full coverage. In this case, you're likely overpaying for your insurance based on the value of your vehicle, the cost of collision and comprehensive coverage, and your deductible. However, if you drop full coverage, you'll need to be prepared to pay out of pocket if your car is damaged or stolen.

Get an Accurate Idea of Your Vehicle's Value

Try to get a fairly accurate idea of your vehicle's actual cash value (ACV), as this is what your insurance company would typically pay if your vehicle was totalled. Most insurance companies will only give you the value of your vehicle today, not what you originally paid for it.

Raise Your Deductible

You can also consider raising your deductible to save on your average premium. Your deductible and car insurance premiums are inversely related: if you raise one, the other will decrease.

Contact Your Insurance Company

If you're thinking of switching to liability coverage, contact your insurance company's customer service department and ask for an estimate. Most insurance companies can provide a quote for changes to your existing policy without actually making the change effective, allowing you to make a more informed decision.

Avoid a Coverage Lapse

Remember, it's important not to allow your auto insurance coverage to lapse. Lapses can result in fines and may increase your premiums, as insurance companies will consider you a high-risk driver. Even if you're not using your car, insurance companies and the state consider a lapse to be driving without insurance.

Frequently asked questions