Let’s start with the fact that you’ve got an old car. Remember, the maximum payout for comprehensive coverage tends to be the cash value of your vehicle. (For an estimate of your vehicle price, click here: http://www.nadaguides.com).
So let’s pretend your car is totaled in a flood. How would your maximum payout compare with the monthly premiums you would be paying if you had comprehensive coverage?
When the overall cost of your premiums starts to outweigh the cost of your car, you might want to save your money for something else.
Some experts suggest dropping comprehensive when the premium costs 10% or more of the potential payout. For example, if your car cost $4,500 and if your premium runs more than $450 per month, it may be time to stop investing in comprehensive coverage.
However, it’s important to understand that dropping comprehensive coverage means you are responsible for the FULL cost of vehicle repairs or replacement in case of an accident. So make sure you are prepared to pay out-of-pocket in case of an incident.
Note: If you took out a loan to purchase your vehicle, your lender will likely require that you have comprehensive insurance. Likewise, if you are leasing your car, you will likely be required to have comprehensive coverage.
Still Not Sure What to Do?
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The answer depends on how you answer the following questions:
What are your state requirements?
Each state has specific minimum requirements for auto insurance. It’s important to know your state requirements before choosing your coverage so that you are compliant with the law. You can find these by checking with your local DMV. Or a National General Insurance agent can also research state specific requirements on your behalf.
Did you lease or finance your vehicle?
Lending or leasing companies typically try to protect their investments. As a result, they will often require you to purchase collision and comprehensive insurance for your vehicle. Once you pay off the loan on your vehicle, however, you could lower your auto insurance premiums by dropping collision or comprehensive coverage.
What type of vehicle do you have?
Consider your vehicle. It’s a good idea to let factors like size or safety features influence the type of insurance you purchase. For example, if you have a large SUV instead of a compact car, you might want to invest in better property damage liability coverage in the event of an accident because a larger vehicle tends to cause more damage.
Who will you allow to drive your car?
In general, it’s a good idea to list any licensed drivers in your household on your auto insurance policy, along with anyone who could drive your car. That way, in case of an accident or damage, you’ll be covered. Anyone in your household who will never drive your vehicles is safe to exclude from your insurance policy.
How comfortable are you with risk?
Insurance is all about measuring risk with your pocketbook. If you are trying to save a bit of money short term, you might be willing to live with a higher amount of risk on the road. If you have been financially burned by not having enough coverage in the past, you might be more willing to spend in monthly premiums to get peace of mind in case of an accident. Deductibles and coverage limits are both subject to how you approach risk.
Nearly every state requires a minimum amount of liability coverage as part of your auto insurance policy.
Liability coverage has two components: Bodily Injury Coverage and Property Damage Coverage.
Bodily Injury Coverage
This coverage protects you in the event that you: