Auto Insurance Help!

[tifnglen]

Hi All

Here is the situation:

I currently pay 95/month for full coverage insurance. Since I am still making payments I have full. I am set to pay the car off in April I have been looking at insurance quotes and I can get Liability only for about 35/month and Liability and Uninsured motorist only for about 45/month. My question is, would you drop full after loan is paid off?

Car Info:

114k miles
1999 Mazda 626
Value around 3500

[InDebtInDC]

would you drop full after loan is paid off?

What is "full" coverage? There are typically 3 types of coverage: liability, comprehensive, and collision. Each type of coverage will have some sort of deductible.

It's really pointless to try and compare insurance rates because the premium depends on your level of coverage and your personal situation.

The rule of thumb is to drop comprehensive and collision when the premium exceeds 10% of the replacement value of the car.

Right now I recommend you get the minimum coverage required by the lienholder. If you don't know what it is, read your loan disclosure/agreement or call your loan servicer.

After the loan is paid off, I recommend dropping at least collision and possibly comprehensive to save money if you live in a safe area, and in accordance with your state's minimum insurance requirements. Try not to get into any accidents or park in peculiar places and you'll be okay.

Then you'll be like the rest of us with old cars. The cost of the extra coverage will exceed any benefit you can receive because the book value of the car is low.

[noppenbd]

Our 2 cars are worth $13K and $6K (both higher than your Mazda) and here is our coverage through USAA:

Bodily Injury 500K/1 million
Property Damage 100K
Uninsured motorist Bodily Injury 100K/300K
Uninsured motorist Property 15K (this should be just above the value of your vehicle, so yours could be at 5K)
Comprehensive, 1000 deductible
Collision, 1000 deductible

Total premium is about $130 a month.

The reason we even keep the comprehensive coverage on the lower value car is that it is not that expensive and we live in the city (more theft & possibility for hit & run). I would raise our deductibles higher but that is the max I can do.

So in your case I do not see a reason to carry uninsured motorist property damage (pays for your vehicle damage if an uninsured person hits you), comprehensive, or collision, unless it is very cheap. I would make sure you have uninsured motorist bodily injury (pays for your medical if hit by an uninsured motorist). And also make sure your bodily injury and property damage liabilities are sufficiently high. If you hit a highly-paid individual driving an expensive car you be glad you have high liability limits.

[tifnglen]

OK I currently have the limits set by the leinholder. When I say full I mean liability, comp, & collision. It just doesnt make since to me to continue to pay 1200 a year on insurance for a car that is a 1999. I plan to save my current car payment 200/month in my savings account. (I have a set amount in that account earmarked for an emergency fund) That would give me 2400/year in my car fund in case something happens.

[sweeps]

The year of the car isn't really relevant. You need to ask yourself what it would cost you to replace the car if you totaled it. Even though the estimated value is $3500, would you be able to replace it for that much? It might be worth it to pay $95/month (actually $50/month since that's the difference you'd be saving) to protect yourself from having to come up with that much dough in the event of an accident.

If you do get rid of collision and comprehensive, don't get rid of the uninsured/underinsured coverage! It's cheap and there are a lot of people out there with little or no liability insurance.

[noppenbd]

Regardless of what it will cost you to replace it, the insurance company is only going to pay out up to the value of the car minus the deductible. So the cost to replace the car doesn't factor in, only the value of the car and the premium, plus whether he has some savings to go towards the replacement vehicle (which it sounds like he does). I would argue that $50 a month (600 a year) is a too high a premium to pay to receive a possible payout of 3500 minus deductible. I could see possibly keeping the uninsured property damage depending on the deductible.

[sweeps]

I don't disagree, but it's really a personal decision based on risk tolerance. If OP cancels collision and then totals the car the next day, (s)he'll have made not-such-a-good deal as Howie Mandel might say.

[tifnglen]

^^ sweeps, that is my main dilema. this sure feels like gambling right now lol. I am a woman by the way.

[InDebtInDC]

The year of the car isn't really relevant.

The year is relevant to the extent that the year is used to calculate the book value of the car. Otherwise, older cars may be eligible for specialty insurance.

Also, the age of the car determines the depreciation value of the car, and should the car depreciate substantially during the period of coverage, you may get a smaller payout than what you expected coming in to the period. New car typically depreciate about 10-30% within the first year.

Over the period of coverage for a policy, you should continually estimate the book value of the car as an effect of depreciation and see if the premium makes sense for the depreciation-adjusted payout. Premiums are usually not adjusted midterm, and only during renewance.

You need to ask yourself what it would cost you to replace the car if you totaled it. Even though the estimated value is $3500, would you be able to replace it for that much? It might be worth it to pay $95/month (actually $50/month since that's the difference you'd be saving) to protect yourself from having to come up with that much dough in the event of an accident.

The carrier couldn't care less about your personal struggle with replacing a depreciated but reliable vehicle.

This is something you need to consider. Should you keep a depreciated vehicle to save money on payments? Should you buy a newer vehicle with a higher book value in the event of a total loss claim? How much will it cost you to trade cars? Is it worth it?

If you do get rid of collision and comprehensive, don't get rid of the uninsured/underinsured coverage! It's cheap and there are a lot of people out there with little or no liability insurance.

If OP cancels collision and then totals the car the next day, (s)he'll have made not-such-a-good deal as Howie Mandel might say.

I agree with this. Generally you want to protect yourself from others as much as possible. If you caused an accident then I wouldn't feel so bad if you were out of a car, but if it was someone else's fault then I would feel bad if the person doesn't have adequate coverage.

[tifnglen]

^ I dont know if this really matters but I have a nice car. I dont plan to buy another one any time soon.

[sweeps]

The year is relevant

The year of the car is not relevant if you know the insurance company's estimated replacement value.

I may choose to insure a 2001 vehicle if it is still worth $10,000, but forego coverage on a 2007 vehicle that is only worth $2,000.

The carrier couldn't care less about your personal struggle with replacing a depreciated but reliable vehicle.

Not sure where I said such a thing?

If the insurance company is covering you for $X and you drop coverage and total your car, do you have $X on hand to put toward another car? Many people don't. And many people can't just live without a car. So for these people they may want to keep the coverage to protect themselves.

[sweeps]

Tif, there are a lot of variables here. What exactly does your insurance company think your car is worth? Do you consider that amount to be fair value? What is your deductible? If you didn't have insurance and got into an accident, would you be able to quickly recover from that financially? Are you an accident-prone person? If you dropped coverage, are you the kind of person that would be so nervous about it that she might get into an accident? Do you rent cars a lot? (If you dropped full coverage you would have to buy the rental company's insurance which is expensive.)

[noppenbd]

tifnglen,

I will try to lay out your decision more clearly. Let's assume the deductible on the policy you currently hold is $500, and would stay the same with the new liability & uninsured only policy. If you keep the collision and comprehensive coverage you are paying $600 more a year for at max $3000 of coverage (in a total loss that is your fault, the ins company will pay out value of car - deductible). That means if you don't file a claim for at least 5 years you are better off keeping the extra and putting it in your car fund.

[tifnglen]

Tif, there are a lot of variables here.
What exactly does your insurance company think your car is worth?

3475

Do you consider that amount to be fair value?

I dont know alot about depreciation calculations but KBB has it at about the same value

What is your deductible?
500

If you didn't have insurance and got into an accident, would you be able to quickly recover from that financially?

I have a little more than 3500 in an ef and I plan to contribute 200/month (former car payment)

Are you an accident-prone person? If y

ou dropped coverage, are you the kind of person that would be so nervous no
Do you rent cars a lot? (If you dropped full coverage you would have to buy the rental company's insurance which is expensive.)

Never rented a car in my life!

Am I to assume that the most i can get from the insurance company is 2975 (3475-500 deductible)

[noppenbd]

Am I to assume that the most i can get from the insurance company is 2975 (3475-500 deductible)

For damage to your vehicle, yes.

Check with your insurer whether dropping your comprehensive & collision will affect your coverage when renting a vehicle. That is the first time I had heard that, and I think it may depend on your state and/or insurer.