When to Reduce Your Car Insurance Coverage

Every state has minimum insurance requirements for car owners, specifically bodily injury and property damage liability. Although you are always required to meet the minimums, you may consider scaling back on your optional insurance coverages to save money as your car ages.

But when is the right time? Preferably when the math works out in your favor, so that you trade off the money you save on your premium for more risk but at a lower cost than when your car was new.

The following is a rough guide on car insurance coverage that you can use to help determine what is appropriate for you and your vehicle.

If you are financing your car, the lender will require that you carry collision and comprehensive coverage. But even if you paid cash for that new car, it behooves you to carry the same coverage.

Comprehensive coverage generally covers anything that might happen to your car, like hail damage, if someone hits your vehicle in a parking lot and runs, or if it is vandalized. In this case, the insurance generally covers the value of the damage (minus your deductible).

Collision coverage generally covers the cost of repairing or replacing your vehicle if it's damaged in an accident, regardless of who is at fault. This includes both collisions with other vehicles and collisions with stationary objects.

If you really want to be covered all the way for that new car, you can also buy gap insurance. Gap coverage makes up the difference between what your insurance policy may deem the value of your car to be if it is totaled, and what you still owe the lender.

If you are close to paying off your loan, you may want to consider dropping gap coverage as the car is likely worth more than what you owe.

Once you pay off the loan, if it's still between 2 and 5 years old, you may want to keep comprehensive and collision coverage, as you would still be out of pocket considerably if it is totaled or stolen and not recovered.

At this point, you may want to consider getting rid of your comprehensive coverage. But before you do that, you should determine what your car is worth in the resale market, using the Kelley Blue Book or Edmunds.com.

Whatever is in the Kelley Blue Book is what your insurer would pay you if the car is totaled. Would you be OK losing that much if your car is totaled or stolen, or if it suffers significant damage that was your fault?

Compare how much you save every month with that figure and determine for yourself if dropping comprehensive and collision coverage is worth it.

If you're still paying full coverage at this point, the value of your vehicle may no longer be worth the burden of the higher premium.

One option is to ditch collision coverage, which tends to be more expensive, but keep comprehensive, which will still cover your vehicle in case of that parking lot hit-and-run and theft.

If you are still unsure, you can call us and we can help you determine what coverage may best for you.

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