For many people, once a vehicle’s value drops below a certain threshold (often a few thousand dollars), dropping collision coverage can be a smart way to save on premiums—as long as you have enough savings to cover repairs or the cost of a replacement if an accident occurs.
On the other hand, if losing the car would cause serious financial strain, paying for collision coverage may provide peace of mind, even on an older vehicle.
What factors should I consider before dropping full coverage car insurance?
When deciding whether to drop collision coverage, start by estimating your car’s actual cash value (ACV) to see how much you could realistically expect from an insurance payout if your vehicle were totaled. Then, weigh that against the cost of maintaining collision coverage. If the extra premium exceeds the potential payout, collision coverage may not be cost-effective.
Additionally, consider your financial situation—specifically, whether you have enough savings to handle the cost of repairing or replacing your car out of pocket. You’ll also want to evaluate your driving habits. If you frequently drive in high-traffic areas or rely heavily on your vehicle, you may want to consider maintaining full coverage car insurance.
What happens if my car is totaled and I only carry liability insurance?
If you only carry liability insurance and your car is declared a total loss after an accident you cause, your policy will not pay to replace or repair your vehicle.
Liability coverage only applies to damages and injuries you might cause to others or their property. This means you’ll be fully responsible for the repair or replacement cost of your vehicle, in addition to any injuries to you or your passengers.
If the accident is the other driver’s fault and they have adequate insurance, their policy should cover your damages, but this can still involve a lengthy claims process, and there’s no guarantee their coverage limits will fully pay for your loss.
In a nutshell
If your car’s value is relatively low, carrying full coverage car insurance may not be worth it, as the payout in the event of a total loss may not justify the cost. However, if replacing your vehicle or covering significant repair expenses would strain your budget, maintaining collision and comprehensive coverage may still be a wise decision.
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