What are Comprehensive and Collision coverages?
First to clarify, Comprehensive and Collision coverages protect your car. Collision coverage pays if you have an accident (with another car), an inanimate object (doh!) or you roll your car over (What were you thinking? That move only works in cartoons!). Comprehensive coverage is just about everything else: If your car is stolen, someone breaks into it, you get a cracked windshield, etc.. These are the coverages that your lender requires when you have a loan. Therefore, when a car is paid off, many people consider dropping those coverages to save some money on their car insurance bill.
Pro: You will save money on your car insurance
On a later model car, you could save a significant amount of money by eliminating Comprehensive and Collision from your policy. Often, you can cut your premium in half. Woo hoo(!), you say? Not so fast… Read on…
Cons: What happens if you have a loss?
Keep in mind, if you delete Comprehensive and Collision coverages and something happens to your car, it’s up to you to pay to repair the damage or replace the car. (Bummer time for you, dude!) An additional thing to consider, however, is that when you delete Collision, you can (and should) make sure you add Uninsured Motorist Property Damage (UMPD) coverage to your policy. That way, if an uninsured driver causes an accident with you, you can recover up to $3,500 from your insurance. With UMPD on your policy, the only accidents where you get paid nothing for your car following an accident is if you cause the accident. If the other guy causes the accident, either his insurance pays you, or you can collect from UMPD. (Side note: UMPD does not cover hit-and-run accidents unless the other party is identified.)
Should I delete Comprehensive and Collision? Factors to consider
How much is your car worth?
When a car is totaled, your auto insurance company will pay you the market value of your car, in other words the amount you could have sold your car for one minute before the accident or claim. This, minus your deductible, is the most you will receive for your car under one of these coverages. The best place to get an easy answer to this question is www.kbb.com. You are looking for “private party value” which is supposed to represent what you could sell your car for as a private party (in other words, not a dealer).
How much are you paying for Comprehensive and Collision?
This is easy to figure out, all you have to do is look on your auto insurance policy’s Declarations page where it breaks down the coverages you carry and the premiums you pay for each coverage. Add together the premiums for the Comprehensive and Collision coverages and that is about how much you would save. However, your savings will probably vary a little bit for two reasons:
- If you carry Uninsured Motorist and the companion coverage, Collision Deductible Waiver (CDW), when delete Collision coverage you will likely see some increase as the CDW coverage is replaced/modified into Uninsured Motorist Property Damage coverage. Usually though, that increase is dwarfed by the savings from dropping Collision coverage.
- Also, if you carry Comprehensive and Collision coverages, you may also carry some companion coverages like Rental Car coverage and Roadside Assistance. Many car insurance companies require Comprehensive and Collision for you to carry these extra coverages so you may lose them as well. This will result in bigger savings, yes, but will also reduce the protection afforded by your car insurance policy. Would you need to rent a car while you shopped for a new one? Probably and the cost of renting a car for a week to a month would be hundreds upon hundreds of dollars.
Can you afford to walk away from your car?
In the event your car is totaled, can you afford to replace it out of pocket? If not, how would you get to work or get around? How would you go grocery shopping or go to the doctor? If the sudden loss of your vehicle would cause you significant hardship, you should certainly take that into consideration before dropping Comprehensive and Collision coverages.
Alternatives to dropping Comprehensive and Collision
Many companies will let you drop just Collision coverage but keep Comprehensive on your auto insurance policy. For some, that is a better alternative as Collision is usually the more costly of the two coverages. To find out if your company allows that, ask your agent. And refer back to the earlier paragraph when I discussed adding UMPD to your policy when dropping Collision coverage.
Alternatively, you might choose to raise your deductibles to reduce your premium. Of course, if something happens, you will pay more of the loss but at least you would still have some protection. Plus, keep in mind that your Comprehensive and Collision deductibles don’t have to be the same. Depending on the company’s rates, sometimes it makes sense to have a very small Comprehensive deductible and a much larger Collision deductible. That way, you have a small deductible to cover the much more common dings and gouges and cracked windshields, while saving money by having a larger deductible for accidents which are far less common.