When to Drop Collision and Comprehensive from Your Auto Insurance Policy
How do you know when it comes time to drop collision and comprehensive coverage (also known as “full coverage”) off of your auto insurance policy? There’s a point when it is financially more feasible to save your money. Knowing when you’ve reached those crossroads is simpler to identify than you imagine.
All cars depreciate in value over time.
It’s a well-known fact that as soon as you buy a new car and roll off the lot, your car instantly loses a few thousand dollars in value. Luckily, your new set of wheels
depreciates at a little slower rate after that initial drop.
Year 1: 20% depreciation of vehicles original value
Years 2 -10: 15% depreciation each year up until 10 years
Year 10: Vehicle has depreciated to 10% of its original cost
After 3 years your $30,000 vehicle will be worth about $17,340. In 10 years it will only be worth $3,000. If it wasn’t blatantly obvious by these numbers already, most cars are not an investment, they’re a liability.
Use simple math to determine your cars worth vs the cost of insurance.
First, you need to know about what your car is worth right now. This can be done with a quick search on Kelley Blue Book. https://www.kbb.com/
Once you know the current market value of your car, which is typically what you’ll get in a payout if your car is a total loss, we need to know how much you’re paying for collision and comprehensive coverage.
Let’s say on average you’re paying $35 a month for both coverages and you have a $500 deductible. That means you’re paying $920 in a year if you get in an accident and use your insurance. If your car’s value is below $920, you’re wasting money and should drop the coverage.
With a $1000 deductible and the same $35 a month, you’re total cost in a year with an accident would be $1,420. If your vehicle is worth less than $1,420 then it’s time to drop these elective coverages.
Or skip the math and follow this simple rule.
As a general rule of thumb, we usually recommend that you stop paying for comprehensive and collision when your car is worth roughly $3,000 or less. Instead of paying for the extra coverages, you can put that money aside in a savings account in case you need it to repair or replace your car in the future.
If you want some more personal advice on what’s best for you and your situation, contact your agent today.
AZ Insurance Team