Are You Overpaying for Auto Insurance?
The pleasure of driving a new automobile can be a costly benefit. Besides the expense of the car itself, new vehicle owners pay higher registration and insurance costs, easily adding an extra $1,000 or more annually to the cost of owning the car. That’s why many drivers operate their existing vehicles for as long as possible. When that period extends to a decade or more, some insurance costs may no longer offer a significant benefit to owners of older vehicles. If a vehicle’s value becomes less than the cost of two months of rent or mortgage payments, it may be time to reconsider certain insurance coverage. Are You Overpaying for Auto Insurance?
When was the last time you checked the value of your vehicle? If your car is approaching 10 years of age, it’s worth your time to take a quick peek online to see what it’s worth. One website I use to do this is http://www.kbb.com. Are You Overpaying for Auto Insurance?
Kelly Blue Book is a valuable resource for monitoring a vehicle’s value. Its online tool is free to use, and it provides a range of options to tailor the results to the condition of your vehicle. Once you’ve obtained the estimated value of your auto, it’s time to evaluate your insurance coverage.
Though liability insurance is required to pay for the damage you might cause to other people and property in an at-fault accident, you can make adjustments to that coverage to determine the limits that make sense to you, so long as you maintain minimum coverage required by your state. Other coverage such as wage earner benefits, death benefits, rental reimbursement, and towing and labor are optional and not required unless you determine they’re needed for your financial situation. Two of the more costly auto insurance options, comprehensive and collision coverage, can be mysterious in nature, so we’ll evaluate what they are and how to determine if you really need them.
Comprehensive coverage provides you with financial relief if a thief steals your car, if a tree falls on your car during a storm, or you drive into a deer that popped out of nowhere into the middle the road. Collision coverage provides you with financial relief if you back into a telephone pole or mistake the gas pedal for the brake and ram your car into a building. Comprehensive and collision coverage financially assists you with the loss of or damage to your vehicle, while liability coverage financially assists those you harm in an accident you cause.
Comprehensive and collision can easily increase the annual cost of insurance coverage by 20 percent or more. Is maintaining this coverage worth the expense?
First, if you have a loan on the car, the lender usually mandates comprehensive and collision coverage for your vehicle, so removing them isn’t an option. Second, if you have no savings, no backup vehicle, and no other options to get to work or doctors appointments should your vehicle become inoperable in an accident you caused, it may be worthwhile to maintain comprehensive and collision until you can create a small financial cushion to handle the loss of your vehicle. Beyond these situations, let’s look at the value of your vehicle to see if you need to keep the extra coverage.
If the annual cost of comprehensive and collision insurance is 50 percent or greater than the value of your vehicle, it might be a good idea to drop the coverage, so long as you’re a safe driver and don’t live in a high-risk area. Between 25 and 50 percent coverage cost to vehicle value, dropping the coverage is worth considering if you have another option to get to where you’re going or have a financial cushion to draw from should your vehicle become disabled and the damage isn’t covered by another driver’s insurance coverage. Below 25 percent cost to value, it might be best to maintain the coverage unless the loss of the vehicle and its value would not cause a significant impact on your finances.
The bottom line: The decision to drop comprehensive and collision insurance coverage is a personal one, and should be carefully evaluated to determine if keeping them is right for you. If, after assessing the value of your vehicle and your financial resources, you determine that it makes sense for you financially to drop the coverage, it could save a significant sum that you can use for other current expenses or save for future use.