For out-of-work people who own cars and depend on them to get to work, car insurance can be one of the last bills on their list of monthly payments.
Some auto insurance companies are helping by giving small rebates to customers who are stuck at home and aren’t driving much during the coronavirus pandemic.
Do I Still Need Insurance?
If you’re not driving, why pay for auto insurance at all?
Because if you do drive at all — even a mile to a grocery store — and get in an accident, you’ll likely need insurance to cover damage to your car, the other driver’s car, and any medical costs that may ensue. You could also get into trouble for not having insurance.
Most states require drivers to have auto insurance. If you stop making payments to the insurer, your coverage could be suspended. That means no coverage if you’re in an accident.
2 Ways to Save
Let’s assume you have car insurance and are continuing to make payments on the policy. One way to drop the optional types of car insurance that pay to repair or replace your car in certain situations. These are collision and comprehensive coverage.
Collision coverage pays for damage to your car:
When hit by another vehicle
When you hit an object, such as a fence
Comprehensive coverage pays for:
Damage to your car from vandalism, hail, flooding, fire, falling objects, rocks cracking windshields.
Damage to your car from hitting an animal, such as a deer.
The value of your car if stolen and not found.
Your insurer will only pay you up to the fair-market value of your car, minus your deductible. If you car is old and not worth much, it may be worthwhile to drop comprehensive and collision coverage.
You may do a similar calculation in your head if you take your car to a mechanic for a major issue that must be repaired for the car to run. If the repair costs more than the value of your car, you may decide not to have the work done.
How Much Can You Save?
One analysis found that the average annual rate for collision coverage is $596, and for comprehensive it’s $192.
The Insurance Information Institute says that about 77% of drivers buy comprehensive coverage and 72% buy collision.
In general, people should buy both if:
Their car is less than 10 years old.
Their car is more than 10 years old and worth $3,000 or more.
They can’t afford to repair or replace their car if it’s severely damaged or stolen.
Other Times to Drop Them
A key time to keep comprehensive and collision coverage is if your car hasn’t been paid off yet. Your lender may require full coverage with deductibles you can afford until the loan is fully repaid.
However, you may be able to drop your insurance premium by raising the deductibles on these types of coverage. Instead of paying a $250 deductible, raise it to $1,000 and your insurance may drop by hundreds of dollars.
The key is to have $1,000 set aside to pay the deductible if you need it.
If your car is so old or the value so low that you plan on buying a new one if you get in an accident, then drop comprehensive and collision and put that savings aside for a down payment on a new car.
If your premium and deductible cost the same as it does to repair your car, then don’t insure it for these two optional coverages.
An Example Of Premium Costs In Dollars
A claim is usually worth filing if the premiums for these two coverages reach 10% or more of the potential payoff. The payoff is your car’s actual cash value minus your deductible.
Suppose your car is worth $5,000 and your deductible is $500. That puts your potential payoff at $4,500.
If your annual comprehensive and collision premiums are $450 (10% of your premiums for them) or more, then it’s worthwhile to drop them.
An Example Of A Car’s Value In Dollars
Another way to figure out if your annual comp and collision premiums, along with the deductible, are worthwhile is to compare them to the value of your car.
You can find the value of your car at sites such as Kelley Blue Book and the National Automobile Dealers Association, or NADA.
Using the example above, suppose your car is valued at $5,000. Do your premiums for comp and collision, plus your deductible, add up to $5,000? Probably not, making keeping the coverage worthwhile.
The Insurance Information Institute says that the average annual rate for both coverages is $660. Add a $500 deductible and you’re paying $1,160 per year if you get in an accident and file a claim.
But if your car is worth less than $1,160, or close to it, then having the coverage doesn’t make sense.
You may think your car is worth more than it is. But take a few minutes to check the value. An old car in fair condition with high mileage probably isn’t worth as much as you think it is.
Drop Collision Only?
Collision coverage usually costs a lot more than comprehensive coverage. Collision coverage is used for a lot more instances, making it more expensive.
Insurers may require that both coverages be purchased together. Some may allow one to be bought without the other, though comprehensive may be harder to obtain without collision coverage also.
Ask your insurer if it will allow you to drop collision coverage only. If it does, then be prepared to buy another car if your car is totaled or suffers major damage in an accident. The short-term savings of lower insurance bills may not make that cost worth it.