One of the benefits of owning an older car is the relatively low replacement value. This means two things – a. you can probably replace it with a car of equal value with the cash you have on hand, and b. you can therefore cancel your collision and comprehensive insurance coverage without a second thought.
I recently phoned my insurance company to do exactly that.
Let me share how I came to my conclusion so you can hopefully do the same exercise in your situation.
My Car Value
I drive a 2001 Dodge Intrepid. The private party value on Kelley Blue Book (it’s in fair condition) is about $2,100.
Right away, you can see that’s not a large chunk of change. I can easily replace it with something of equal value if I really need it after an accident (unlikely, but I can still do it).
The Value of Insurance
Think back to our discussion on why we get insurance in the first place – to protect from large, unexpected expenses that we can’t otherwise pay for.
Now let’s see what my car insurance is actually protecting me from.
Collision insurance pays for repairs to your own vehicle when you’re in a crash. Comprehensive insurance pays for theft, damage from weather events like hail, and the like.
Whenever either event happens, your deductible kicks in. This is the amount you must pay before your insurance company starts picking up the bill.
My deductible on both of these policy segments was $1,500. That means, in essence, that I was paying for roughly $600 of maximum coverage ($2,100 totaled value – $1,500).
This assumes that the insurance company is actually going to give me the full private party value as a replacement cost. Not so fast. While I was on the phone, I asked for their payout.
The rep simply said they take the KBB value as a basis and adjust based on my local area. For the purposes of this example, I assumed that the full value would be paid, but in reality it would probably be a couple of hundred less.
Okay, this is all pointless babble if I’m paying $5 a year for this coverage. But I’m not.
My combined premium for comprehensive and collision comes to about $220 per year…
For $600 of coverage…
that I could easily cover with my emergency fund in the unlikely event of a car crash totaling my vehicle.
Based on today’s value of the car, I would theoretically have to total the vehicle every 2-1/2 years for this to make sense. Sooooo….you can imagine what I did.
What About the Other Guy?
You obviously get insurance not only to cover the cost of your own car in the event of a crash, but also for all the other stuff you plow down accidentally.
Thankfully, that’s not covered by the comp/collision insurance, but by the property damage and injury portions of your insurance. If you have questions about specifics, I would suggest asking your insurer directly.
I ended up canceling these portions of my insurance and will save about $220 per year, which I can put away in my savings account toward car care.
If your car is older than 6-7 years, I would suggest going through the same exercise to see whether your coverage is still meeting your needs.