By Sabrina Karl
As your car gets older, your auto insurance premiums inch downward, since the value of the vehicle declines, meaning the insurance company would need to pay less to replace it. But the decline in premiums is minor, while the vehicle’s value decreases much more substantially and quickly, making auto insurance on older cars and trucks less of a good deal.
Conventional advice is that vehicles under 10 years old should be fully insured, as they are still worth enough that claims for repairs or replacement make good financial sense. But after that, it makes sense to check what you’re paying in premiums, and what your car is still worth.
The two policy categories to consider adjusting are collision, which covers damage from colliding with another vehicle, a tree, or a structure, and comprehensive, which covers damage or loss from things like fire, theft, and falling objects. In most states, these coverages are optional and adjustable.
Note, however, that you must generally own your vehicle free and clear before you can reduce collision or comprehensive coverage, as most auto lenders require full coverage on vehicles with a loan.
The common rule of thumb for deciding if it’s still worth carrying collision and/or comprehensive coverage is to determine the current value of your car and the annual cost of your premium for both coverages. Once your collision and comp premium for the year is 10% of your vehicle’s total value, it’s time to consider dropping one or both of them.
This will happen at different stages depending on the vehicle and your state, since different vehicle models have different value retention rates and repair costs, and because auto insurance rates vary widely by state. Talking to your insurance agent to make a smart comparison is a good first step.