The conventional wisdom is that for newer cars you should always have full coverage (collision and comprehensive) car insurance, but with older cars a liability-only policy is sufficient. But conventional wisdom isn’t always right. The decision between liability, collision, comprehensive, or full car insurance coverage comes down to a single question: If your car is damaged or totaled, are you prepared to pay the entire cost to repair or replace it?
There are several categories of car insurance to consider. Liability insurance covers other people and their property (including other vehicles), while collision insurance covers your vehicle and your passengers. Comprehensive coverage is for damage not caused by collisions, such as fires, theft and animal-related accidents. “Full coverage” is a combination of liability, collision and comprehensive insurance. Note also that some states require “no-fault” insurance, in which each insurance company covers its own policyholders in case of an accident.
Minimums Are Not Enough
Everyone knows that liability insurance is non-negotiable. It’s required by law in every state. Obviously, if you opt for the state minimum coverage, you should know in advance that you would be on the hook for any damage or injury above and beyond what your policy would cover.
For example, if you are at fault for an accident that involves a new car or multiple cars, the amount of damage can add up quickly. Just think about the cost of a new SUV, for example, which would easily surpass many state minimum insurance requirements, often around $25,000 of coverage. If the value of the car is $40,000 and it is totaled, and you only have $25,000 of property damage coverage, you would be personally responsible for the additional $15,000. If a second, similar SUV is involved, you would be responsible for $55,000 out of pocket in property damages. Likewise, you should carefully consider your bodily injury limits, too. If people are injured in an accident you caused, you will be responsible for their medical bills that exceed your coverage limits, which can be substantial.
Sometimes collision and/or comprehensive insurance are required as well—at least, they can be if someone else is financing your vehicle. Lenders know that borrowers are much less likely to continue making payments on a car or truck if it’s been damaged or totaled in an accident. Because of this, most finance companies will require a certain amount of coverage above simple liability in order to make sure that the collateral (the car or truck being financed) is protected. Since people are much more likely to use financing to buy a new or late-model vehicle, newer cars and trucks are also much more likely to be protected by collision and comprehensive coverage.
If you have a car you bought for cash, or a car with a loan that’s completely paid off, are you ready and able to repair or replace it in the event of an accident?
Consider the Risks
When we’re on the road, we all appreciate the fact that we could get into a collision at any time. Fewer people consider the damage that can occur to a vehicle when it’s parked in a garage, in front of a store, or under a tree. There are other considerations as well:
High Crime vs. Low Crime: If the neighborhood where you live is relatively safe, you may think that the chance of your car being vandalized or stolen is unlikely. But before you drop your comprehensive coverage, consider the other places you go in your vehicle. Think about where you work, where you go to school, where you shop, and other locations you visit regularly.
Nature’s Fury: If you live in a coastal area where your car could be damaged by hurricanes or tropical storms, consider that as you decide what type of coverage you need.
Younger Drivers: Accident rates are higher for anyone under 25 and especially high for young male drivers. If you have a teenager or young adult driver, that’s worth factoring into your decision-making process.
Numbers Drive the Decision
In order to decide whether to carry collision and/or comprehensive coverage on your older-model car or truck, it’s useful to find out first how much it would cost to replace it. You can find the current market value at either of these websites:
In addition to your vehicle’s make and model, you’ll have to indicate the mileage, trim level, and all of its features and options. Both websites also ask for your ZIP code, since the place you live actually has an effect on the value of the vehicle you drive. Make sure you’re very honest when you’re indicating the condition of your current vehicle. Most cars older than a couple of years have enough little scratches and dings that they’re not truly in “excellent” condition. Be as candid as you can.
Once you have the private sale value of your car or truck, write that on a piece of paper. Next to it, write the cost to maintain collision/comprehensive coverage on the vehicle. If you decide you don’t need the “extra” insurance, are you prepared to spend the equivalent of the value of your vehicle if you need to replace it?
There are a few additional considerations. Many collision/comprehensive policies include towing and rental car costs along with vehicle damage coverage. It’s also common to have glass coverage (for windshields and windows)—either included in the policy or as a low-cost add-on. If you’re in an accident or your vehicle is otherwise damaged, the costs can really add up.
If the value of your vehicle is low enough, you may decide it’s worth the risk. In fact, at some point it’s likely that your insurance company will decline collision or comprehensive coverage because of the value of the vehicle. Until then, unless you really prefer to live dangerously, it’s probably worth continuing with the collision/comprehensive policy to ensure you don’t take a large financial hit if your car is totaled.