When to drop comprehensive and collision on your auto insurance.

This question on coverage's comes up all the time from our clients; at what time should collision and comprehensive be removed from an auto. First let's look at what each coverage provides.

Collision Insurance covers damage to your vehicle in the event of a covered accident involving a collision with another vehicle or object. Comprehensive car insurance pays for damage to your vehicle caused by covered events such as theft, vandalism, animal strike or hail, which are not collision-related. 

Collision and comprehensive are referred to as "physical damage" coverage's since they cover damage to your vehicle. If you finance or lease your vehicle, your lender will require you to carry this auto insurance.  A misleading term for these coverage's is Full Coverage. I do not like to use this term since it implies everything is covered, which is often not he case and very misleading. 

While collision and comprehensive auto insurance are frequently discussed together, you can purchase comprehensive coverage without collision coverage, but not the other way around. Bear in mind that these coverage's usually do extend to rental cars (not U Haul Trucks) you may drive, but do not extend protection should you have an accident while driving a friend's car. Auto insurance typically follows the vehicle, not the driver, with the exception of rental cars.

Now that we have a bit of a better understanding of collision and comprehensive auto insurance, let's look at the question of when you should consider removing these coverages. This is actually a personal decision that is very closely related to the cost of the coverages and the actual cash value of your auto.

Below are some thinking points.

Consider your cost for collision and comprehensive coverage; if the premiums and deductible amount cost more or the same as the worth of your vehicle, it's likely time to consider dropping the coverage. For example, if your car is worth $1,000 and your coverage costs $500 a year plus a $500 deductible, you're not really getting anything for your money.

If your premiums don't quite match up to the value of your vehicle, then look at the 10 percent rule. If your premiums exceed 10 percent of your potential payout,  you may want to consider dropping your physical damage coverage. Your potential payout is the value of your vehicle minus your deductible.

For example: The Value of your vehicle is $3,000 and you purchased a $500 deductible, your potential payout would only be $2,500 in the event of a total loss claim. With the 10 percent rule, if your collision and comprehensive premiums cost $250 or more a year, it's time to consider dropping the coverage.

The last theory to consider is what I call the Stomach Theory.  Are you in the financial position to replace that auto with zero compensation from your insurance carrier. Can you stomach the loss? If yes, then remove the coverage. If you are not sure where you can find the cash for a down payment on a replacement auto, then you may want to keep physical damage coverage on your auto.

Some clients will take the collision coverage off and keep the comprehensive coverage. This is so if  they hit a deer or have a glass breakage from road debris there is coverage in place.  It all comes down to your personal decision that we can not make for you. We are more than happy to go over your options and help you make the decision that best fits your needs.