When to Drop Full Coverage on an Old Car to Save Money

Key Takeaway:

If your annual cost for extra coverages is more than ten percent of your car's value, you should probably drop them. This simple change can keep more money in your bank account every month.

We all want to save money on our monthly bills. If you own an older vehicle, you might be paying for insurance you do not actually need. It might be time to drop full coverage on an old car to keep more cash in your wallet.

What Exactly Is Full Coverage?

To make a good choice, we must understand what we are paying for. Full coverage usually combines liability, collision, and theft insurance. Liability pays for damage you cause to other people in an accident.

Collision and theft coverages pay to fix your own car if you damage it. If your car is old, these extra protections might not be worth the high price. You can find many smart money management tips online to help you balance your budget.

The Ten Percent Rule for Older Cars

Many financial experts suggest using a simple rule of thumb. Look at the yearly cost of your collision and theft coverage. If this cost is more than ten percent of your car's market value, you should probably drop it.

For example, let us say your car is worth 3,000 dollars. If you pay 400 dollars a year for collision and theft, that is too much. Over a few years, you will spend more on premiums than the car is worth.

How to Find Your Car's True Value

You cannot make this decision without knowing what your car is worth today. Insurance companies will not pay to fix a car if repairs cost more than the car's value. They will simply declare the car a total loss and write a check.

You can check trusted websites like Kelley Blue Book to find this number. Be honest about your car's actual condition. If it has dents, its value will be lower than a perfect car.

Use This Table to Compare Your Options

Let us look at how the math works out for an older vehicle. This simple comparison can help you see if you are wasting money on your current policy.

The Risk of Dropping Full Coverage on an Old Car

Before you make the switch, you need to know the risks. If you drop full coverage on an old car, you must pay for repairs yourself. If you wreck the car, the insurance company will not help you get another one.

Do you have enough savings to buy another cheap car? If you have a small emergency fund, dropping coverage makes sense. You can read our guide on saving on car expenses to learn how to build up your cash reserves.

When You Must Keep Full Coverage

Sometimes you do not have a choice in this matter. If you are still making payments on your car, your lender will require full coverage. They want to protect their investment until you pay off the loan.

Once you make your last payment, you get the title. That is the perfect time to look at your policy again and change your coverage levels.

Other Ways to Lower Your Insurance Bills

If you decide to keep full coverage, you can still save money. One easy way is to raise your deductible. A higher deductible means you pay more out of pocket after an accident, but your monthly bill goes down.

You should also ask your agent about discounts. Many companies offer lower rates for good drivers or low annual mileage. It never hurts to call and ask for a better deal.

Frequently Asked Questions