When trying to make ends meet, especially if temporarily out of work, you may be looking at all of your bills to see where you can scrimp and save. You begin by cutting back on spending at the grocery store and dining out. You stop contributing to your savings accounts. You trim your cell phone and cable bills by changing your service plan. Did you know you may make changes to your insurance coverage to lower your monthly insurance costs?
The pandemic changed the way we work. With job cuts and changes that have employees working from home, you may wonder "Do I still need auto insurance at all?" Yes. 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.
But there are ways to save. Read on.
Dropping comprehensive and collision insurance
Nearly every state mandates minimum auto insurance coverage, which could include liability coverage and uninsured motorist insurance. However, there are a number of optional types of car insurance that pay to repair or replace your car in certain situations. These are collision insurance and comprehensive coverage.
Understanding comprehensive and collision insurance
What is collision insurance? This insurance covers damage to your car, whether it is hit by another vehicle or you hit an object, such as a fence.
Meanwhile, comprehensive insurance pays for damage to your car that doesn't a vehicle. This includes damage to your car from vandalism, hailstorms, flooding, fire, falling objects, rocks cracking windshields, damage to your car from hitting an animal, and even the value of your car if your car is stolen and not recovered. (Although your insurance company will only pay you up to the fair market value of your car, minus your deductible.)
The cost of comprehensive and collision insurance
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.
When to drop comprehensive and collision insurance
In general, people need both types of coverage if:
- a car is less than 10 years old
- older cars worth $3,000 or more
- you are leasing a vehicle
- your can’t afford to repair or replace your car if it’s severely damaged or stolen
However, 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.
If you are experiencing anything above, you may not be able to drop coverage but you can 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 car insurance company may drop your premium 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 it's time to drop comprehensive and collision and put those savings aside for a down payment on a new car.
Your insurer will only pay you up to the fair-market value of your car, minus your deductible. If your 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. If your premium and deductible cost are the same as the cost of repairs, then don’t insure it for these two optional coverages.
An example of premium costs
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
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 the value of your vehicle 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.
Should you 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.
Other ways to save
Even if it doesn't make sense for you to drop comprehensive or collision coverage, it behooves you to get insurance quotes from multiple companies and compare the rates to your current insurance policy. Many people purchase car insurance through a company and re-enroll each year without reviewing rates. You may be surprised to find the same coverage being offered for less through another provider.
If you don't have the time to call or review the big-name insurers, turn to a platform like CarInsurance.net, which provides multiple, non-commitment quotes for free. Simply enter your information and let it show you the cheapest car insurance
rates available. Some insurers may offer discounts you haven't been receiving, such as safe driver discounts and bundling discounts if you combine your auto and homeowners or renters insurance.
The bottom line
The cost of comprehensive and collision coverage may be costing you more than your car is worth. Dropping the coverage can help you penny pinch during tight months but don't be left high and dry: Put aside as much savings as you can into an account for the day you may need to buy a new car.