Money Talks, So Should You

When to lower your collision and comprehensive insurance

Clint Williams
by Clint Williams, Dimespring Contributor

It’s smart to protect your car from mayhem.

But somewhere down the road, the cost is just not worth the premium payment.

Make no mistake – most states require you to have automobile liability insurance. No matter how many miles, dings and dents your clunker may have, you must carry liability insurance to protect other drivers. It’s a permanent part of insuring an automobile.

But it’s another story with collision and comprehensive coverage, which protects you. Collision pays for repairs if the car is in an accident. Comprehensive covers the cost of repairs if your car is damaged by hail, falling tree limbs or anything else that doesn’t involve two cars banging into each other.

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If you’re financing a car, the lender will typically require you to carry coverage for collision and comprehensive damage. After all, what is the point of repossessing a car that has been wrecked?

But once you’ve paid off the car loan, should you continue to carry collision and comprehensive coverage?

That all depends. Ask yourself:

• What is your vehicle worth? 
• What are the premiums? 
• How big a loss can you handle without falling into crisis mode?

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To answer the questions, my wife and I dug out our most recent insurance paperwork. We drive a 2001 Honda Odyssey minivan with about 170,000 miles. The value of our big green machine is about $3,800 to $4,800, according to Kelley’s Blue Book, the bible of used car prices.

Our annual premiums for collision and comprehensive insurance in Arizona total $155 a year. The policy has a $500 deductible. That means the policy protects us from a loss of $3,300 to $4,300. A rule of thumb, according to the Insurance Information Institute, is to drop collision and comprehensive coverage on vehicles worth less than 10 times the cost of the premium. The minivan is still worth more than 20 times the cost of the premium, so we’ll keep the coverage for a bit longer.

There may be other factors to consider:

• Are you living paycheck to paycheck?

A $1,000 insurance check may be exactly what you need to replace a totaled car with a clunker good enough to get you to work.

READ: How used cars save you money

• Are you pretty flush?

If you have a sizable emergency fund, you may feel comfortable dropping the extra coverage, knowing you could replace the damaged car with savings.

So, do the math when you get your next premium notice. Maybe you can save some money to direct to your new car fund.

Have you ever been in a wreck and totaled your car? Were you well covered? Let us know. Thanks.

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Clint Williams is an Arizona-based freelancer for DImespring. He has written for the Arizona Republic and the Atlanta Journal-Constitution.