When should I drop collision and comprehensive coverage on my car?
You can cut your auto insurance costs by dropping your collision coverage, your comprehensive coverage, or both. The question is, will dropping the coverage save you money or cost you money?
Collision and comprehensive coverage guidelines
First, make sure you understand the two types of auto insurance coverage. Collision coverage is what it sounds like: It covers repairs or replacement of your car if you’re in an accident, and includes situations where the other driver doesn’t have auto insurance. Comprehensive coverage pays for repairs caused by anything other than an accident, including hail damage and theft.
Consumer Reports recommends this guideline: If the annual auto insurance premiums for comprehensive and collision are 10 percent or more of the book value of the car, consider dropping the coverage. In other words, if your car is worth $5,000 and your comprehensive and collision premiums cost more than $500 a year, it might be time to cut your auto insurance costs by canceling the coverage.
The idea is that, if you filed an auto insurance claim, you couldn’t collect more than your vehicle is worth on the market. You can check the market value of your car at the web site for Kelley Blue Book.
Adjust your deductible
Another option is to raise your auto insurance collision and comprehensive deductibles to at least $500. This could make your premiums more affordable. Consumer Reports recommends choosing the highest deductible you can afford to pay out of pocket for this type of auto insurance coverage.
If you have a low tolerance for risk — and not much cash on hand for an emergency — you can always keep your auto insurance’s collision and comprehensive coverage. Your premiums will be higher, but at least you’ll get some money to put toward a new vehicle if your old vehicle is headed for the junkyard.