When should I drop full coverage on my car insurance?

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Rick Musson

Police Sergeant

Rick Musson began his law enforcement career in Bozeman, Montana, shortly after completing his Bachelor’s Degree in Criminal Justice. He has served many roles in the department, including as a traffic officer, senior crash investigator, detective, field training officer, firearms instructor, and currently the training sergeant. For the past 15 years, he has been on the SWAT team and currently...

Police Sergeant

UPDATED: Oct 15, 2022

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Full coverage versus liability only car insurance

Unless you’re one of the lucky drivers who buy or lease a new car every few years, chances are you have an older vehicle that may not need full coverage anymore. But when is the right time to eliminate comprehensive and collision coverage from your car insurance policy? Read on and we’ll give you some guidelines.

The 10% Rule – When to Drop Full Coverage

There is no set-in-stone rule when it comes to removing full coverage from a vehicle. Everyone of us has a different financial situation and a different tolerance for risk. For some, the thought of driving without full coverage is enough to make them leave the car parked in the garage (but what if the house burns down?).

There is a general guideline that goes like this.

If the annual cost of comprehensive and collision coverage added together exceeds 10% of the market value of your car, it’s time to start thinking about removing coverage.

So what does this mean? We’ll give you an example.

Let’s say you’ve driven that trusty Honda Accord since you bought it new off the showroom floor in 2008. You paid nearly $32,000 for it since it was the top-of-the-line EX model with the V-6 engine. It has 108,000 miles on it with all the options.

The market value for the vehicle is determined by a variety of means, but one of the easiest ways to gauge what it’s worth is to use the NADA value. NADA is used by most car dealers and insurance companies to value vehicles, and you can determine your car’s value on their website.

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For our example, the 2008 Accord EX value is $6,550 for a clean trade-in, or $8,950 at retail at the time of this writing.

The fair market value will fall somewhere in between those two values. It’s worth more than what you’d get if you traded it in to a dealer, but maybe not worth quite as much as a dealer would try to sell it back to you.

So for this example, we’ll use $8,000 as a nice round number. Using the 10% rule, if comprehensive and collision coverage costs more than $800 a year, then it is probably time to think about dropping coverage.

That’s it. No fancy formulas or complex algorithms. Just a simple guideline to use when deciding whether full coverage is costing more than it’s worth.

Considerations when dropping full coverage

Here are a few things to keep in mind when deciding to drop full coverage:

  • Ask yourself (and be honest) if you are in a financial position where you can purchase a replacement vehicle if your car gets totalled. If not, then you probably want to keep full coverage.
  • Look at your deductibles. If you have low deductibles, you might just want to increase them to save money. You can cut your rates by up to 40% just by choosing a higher deductible.
  • If you still have a loan on your vehicle, then your loan agreement will require you to maintain full coverage until the loan is paid off.
  • If you drop full coverage and do not have it on any other vehicles on your policy, you do not have coverage if you purchase a new vehicle. So be sure to tell your agent to bind coverage BEFORE driving off the lot.
  • Do you live in an area with frequent hail storms, flooding, or vehicle theft? If so, maybe just consider dropping collision coverage and keep comprehensive coverage in place.
  • You may be able to find a different company that offers full coverage at a rate much lower than you’re currently paying. We can help will that, just click the button below!

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