Have you ever thought about what you would do if a tree fell and the branches scraped your car?
Full coverage auto insurance covers damage to your own vehicle, whether that damage is from a crash, the weather, or vandalism. Having car insurance coverage for practically anything that could damage your car sounds great, and it is great, but you might not need it.
The downside to full coverage is that it costs more than liability-only coverage. You certainly don’t want to spend more than you need to for car insurance coverage, and full coverage is one area where you may be able to eliminate it to save money.
Ask yourself these questions to help you decide if full coverage is right for you.
Liability coverage is the kind of insurance that’s required in just about every state. Even where it’s not required, the overwhelming majority of drivers choose to carry it.
Liability insurance pays for the damage that you do to another party, but it doesn’t pay for your own vehicle damage.
Liability coverage is third-party coverage while full coverage is first-party coverage
Full coverage insurance is made up of two different types of coverage: Comprehensive and collision.
Collision coverage pays for your vehicle repairs if you cause a crash.
Comprehensive coverage takes care of any damage that’s not crash-related including damage from the following events:
Full coverage usually has a deductible. If you want insurance to cover damage, they will, but you’re responsible for the deductible amount.
A normal deductible is anywhere between $200 and $1,000. So, if your vehicle damage costs $6,000 to repair and you have a $500 deductible, your full coverage car insurance will cover $5,500 at the most.
If you’ve just bought a brand new vehicle, then you should purchase full coverage car insurance. Here’s why: If you don’t have full coverage and your car is heavily damaged or declared a total loss, you would have no legal compensation.
If your vehicle is worth $50K, you’d lose up to that value. Look at what your vehicle is worth, and if it’s more than you could afford to lose, you’ll need to consider first-party coverage.
If you’re financing or leasing your vehicle, you will be required to have full coverage by your lien holder. The financial institution (normally a bank) needs to be sure they can recoup their losses following an accident.
After all, if you’re making payments on a car, the car technically isn’t yours–it’s the bank’s until you pay it off. So you’ll need to show them that you’re carrying full coverage if you don’t want to risk getting your vehicle repossessed.
If you drop your full coverage, your lender will place coverage on the vehicle. You won’t have a choice and it will be ridiculously expensive. So, if you don’t own your vehicle outright, you don’t have to decide if you want first-party coverage or not–you’re required to get it.
There are a lot of variables, but generally speaking, if your car is at least 10 years old, the benefits of full coverage start to be eclipsed by the cost of it.
As your car ages, it depreciates in value. If your car is only worth $4,000 and you have a $500 deductible, the most you could get from insurance is $3,500.
Full coverage is an additional monthly cost. It will cost less for a car with less value, but your monthly premiums will still be higher than without first-party coverage. Over the course of a year, if full coverage costs an extra $50 a month, you’ll pay $600.
Once you file a claim, your car insurance rates will increase for around three years. So, when you add that additional cost, the overall benefit of having full coverage will dwindle to nearly nothing. This is especially true for senior drivers because they tend to have cars that they’ve kept in good, working condition for a long time.
Each person’s situation will be different, but if you can figure out what your vehicle is worth and then figure out how much collision and comprehensive coverage costs annually, that can help you decide if you should purchase full coverage. If the annual cost for full coverage is more than 10 percent of your vehicle’s value, it’s time to reevaluate if you actually need full coverage.
You can absolutely save money and still have full coverage insurance. One way to save is by carrying a higher deductible. If you’re willing to pay more when your vehicle is damaged, the insurance company’s risk is diminished and they’ll charge you lower premiums.
Just keep in mind you will have to come up with the deductible amount if, so make sure you have that money saved.
Having no claims on your record will help your premiums be as low as they can be. Keep that in mind if you have a minor accident. Any accident may cause your auto insurance premium to increase, whether it’s on a motorcycle or automobile. So it might be worth paying for the repairs out of pocket so that your car insurance premiums don’t increase.
Steering clear of traffic violations is another way to keep your premiums down. Good drivers are less of a risk to an insurance company, so if your record is clean, your premiums will be lower than if it’s not.
Full coverage auto insurance can protect your financial situation if something major happens to your vehicle. It’s well worth the cost if your car is new or valuable, but the cost for coverage outweighs the benefits at a certain point.
With a little consideration, you can confidently choose full coverage or choose to skip it and just hang onto your liability policy.
Melanie Musson is a writer for the auto insurance comparison site, AutoInsurance.org.