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Is It Time to Ditch Full Coverage? Nine Signs Your Older Car Might Be Ready for Less Insurance
Every driver loves saving a buck, and when it comes to car insurance, that often means re-evaluating your coverage as your vehicle ages. Once your car hits the decade mark, it’s a prime time to consider whether you still need the full protection of comprehensive and collision coverage.
After all, full coverage can set you back over $2,700 annually, a hefty sum compared to the roughly $800 for minimum coverage. If you’re pondering whether to scale back, here are nine indicators it might be a smart financial move.
1. The 10% Rule: A Quick Check-Up
Here’s a simple guideline: if your annual premium for collision and comprehensive coverage exceeds 10% of your car’s actual cash value, it might be time to let it go.
Start by looking up your car’s market value. Then, calculate 10% of that number and compare it to what you’re paying each year for collision and comprehensive. If your premiums are higher, dropping full coverage could be a savvy decision.
2. Your Car’s Value vs. Coverage Cost
Once you know your car’s worth, compare that figure to the cost of your full coverage. If your vehicle is valued at less than what you’re paying for full coverage, it’s likely a good idea to consider reducing your insurance and putting those savings elsewhere.
3. A High-Mileage Ride
A car with a lot of miles under its belt might not need full coverage, especially since its value naturally decreases as the odometer climbs. Generally, older, high-mileage vehicles don’t require the extensive protection of full coverage.
4. Insurance Becoming a Financial Strain
Take a look at your budget. If auto insurance is becoming a significant financial burden, it’s time to review your options.
While adequate coverage is essential, balancing affordability with financial protection in case of an accident is key. Talk to your insurance agent to explore options that won’t drastically increase your risk.
5. You’re Comfortable with More Risk
If you have a high tolerance for risk and are prepared to shoulder the financial burden of accident repairs yourself, lowering your insurance coverage could save you money.
6. You Don’t Drive Much
This one might seem obvious, but if you’re not logging a lot of miles, you could save by dropping full coverage. Logically, less driving means a lower risk of accidents and damage compared to a daily commuter.
7. Planning to Keep the Car for Another Decade
If you have a 10-year-old car that you intend to keep for another ten years, consider switching to minimum coverage now. You could then invest the saved premiums into high-yield savings accounts or similar options. This money could then build up to contribute toward your next car, especially since you likely won’t receive a substantial payout or trade-in value for your current vehicle in the distant future.
8. Covered on Another Policy
Here’s an easy out: if your vehicle is already insured under another policy, you might not need full coverage. For example, if your car is covered on a family member’s existing policy, you likely don’t need collision or comprehensive. Just remember, your car usually needs to be kept overnight at their address to qualify.
9. Rare “Covered Events” in Your Area
Think about how often natural disasters or collisions with animals occur where you live. Comprehensive coverage protects against these types of events. If they’re uncommon in your area, dropping full coverage on your older car could be a consideration.
The Bottom Line
Deciding to drop full coverage on your car requires careful thought. You’ll need to weigh your car’s value against your future automotive plans. While it could save you hundreds of dollars annually, it also carries significant risk if you drive frequently or have a valuable vehicle.
If it’s not quite time to drop full coverage, another smart move is to shop around for a new insurance company. You might discover a deal that saves you money without sacrificing the coverage you depend on.