Should I Have Full Coverage on My Old Car?
Decide if full coverage makes sense for your older car. Weigh costs, risks, and your vehicle's true value to make an informed insurance choice.
Owners of older vehicles often question whether to maintain “full coverage” car insurance or adjust their policy. This decision balances premium costs against the financial risk of repairing or replacing a vehicle. Understanding policy components and assessing your car’s financial standing are important steps in making an informed choice. This article will explore the elements of full coverage and key considerations for insuring an older car.
Understanding Full Coverage
“Full coverage” is a combination of different types of coverage that protect against various risks. It typically includes liability, collision, and comprehensive insurance. Liability coverage is almost always legally required and pays for damages or injuries you cause to other people or their property in an accident.
Collision coverage pays for damage to your own vehicle resulting from an accident, regardless of fault, including hitting another car, an object, or rolling over. Comprehensive coverage covers damage to your car from incidents other than collisions, such as theft, vandalism, fire, natural disasters, or hitting an animal.
Key Factors for Your Decision
The actual cash value (ACV) of your car is a primary consideration. ACV represents your car’s current market value, factoring in depreciation due to age, mileage, and condition. Insurance companies use various methods, including valuation systems and comparable sales data, to determine this value if your car is stolen or totaled. If the cost of maintaining collision and comprehensive coverage approaches or exceeds a significant portion of your car’s ACV, the financial benefit of these coverages diminishes.
The cost of your premiums and deductibles also plays a significant role. Collision and comprehensive coverages each come with a deductible, the amount you pay out-of-pocket before coverage begins. Opting for a higher deductible can lower your annual premiums, but means paying more upfront if a claim occurs. For older vehicles, the average annual cost of comprehensive coverage can range from $134 to $421, while collision coverage can cost between $290 and $743.
Your financial preparedness is another factor. Consider your ability to absorb the cost of repairing or replacing your car if damaged without an insurance payout. If you have sufficient savings to cover potential repair costs or to purchase a new vehicle outright, extensive physical damage coverage might be less advantageous. Conversely, if an unexpected expense would strain your budget, maintaining coverage could provide financial protection.
Your driving habits and risk tolerance also influence your insurance choices. Driving frequency, parking location, and personal driving record all affect the likelihood of an incident.
While insurance for older cars can sometimes be cheaper due to lower market value, some older models might incur higher premiums due to more expensive repair parts, fewer modern safety features, or increased theft risk. Finally, for some, a vehicle might hold sentimental value beyond its market worth. While not a financial consideration, this emotional attachment can sometimes lead owners to maintain coverage they might otherwise drop.
Steps to Take Before Deciding
Obtain a current valuation for your vehicle to understand its actual cash value. Online tools like Kelley Blue Book, Edmunds, or Autotrader can help estimate your car’s current market worth by considering its age, mileage, and condition. This step provides a clear financial baseline for your insurance decision.
Get insurance quotes from various providers. Compare the cost of maintaining your current “full coverage” policy against a liability-only policy. This comparison will highlight the potential premium savings from dropping collision and comprehensive coverage, which can be substantial, sometimes over $1,000 annually.
Review your personal budget and emergency fund. Assess whether your financial resources are robust enough to cover the full cost of repairs or replacement if your older car is damaged or totaled without insurance. This assessment helps determine your capacity for self-insuring against potential vehicle losses.
Consider consulting with a licensed insurance professional. They can provide personalized advice based on your financial situation, driving habits, and vehicle characteristics. An agent can help you weigh the trade-offs of adjusting your policy and ensure you meet any state-mandated minimum coverage requirements.