WEDNESDAY, APRIL 3, 2013
Blog by: Perian Heffner, CIC
The law requires liability insurance on cars but physical damage coverage (comprehensive and collision insurance) is often optional. The only time it isn’t is when there is a loan or lease in place that requires insurance. But as cars get older, it becomes less likely there will be any financing standing in the way of saving money by dropping comprehensive and collision. So when is the right time to do this?
Your financial situation and tolerance for risk are big factors in this decision. We suggest you start by coming up with an estimate of the value of your car. If you Google “Used Car Values”, you’ll find numerous sources that offer free estimates of what your car might sell for. It takes only a few minutes to check some these and you’ll have a good idea of your car’s approximate value.
Then you check how much you are paying for the insurance and weigh the value of the car against the premium savings. For example, if your car is worth $1,000 and you have a $500 deductible and pay $400 for the coverage, you are risking only $100. It’s a pretty easy decision to drop the insurance. If the car is worth $10,000, with the same deductible and premium, you are risking $9,100 and most people would keep the insurance in force.
There’s no universally right answer on this one because of variations in peoples’ financial situations. Wealthier people tend to assume more risk .Our unscientific observation is that most people are willing to live with a risk in the area of $2000, so when the above methodology shows you that level of risk, you’d be pretty normal if you drop the insurance.