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When To Consider Dropping Full Coverage on an Older Car?
by
JG Wentworth
•
March 14, 2025
•
3 min
Deciding whether to drop full coverage insurance on an older car is a financial dilemma many car owners face. As your vehicle ages, its value decreases, and so should the cost of insuring it, right? Well, it’s not always that simple. Let’s explore the key factors you should consider to make an informed decision.*
Understanding Full Coverage Insurance
Full coverage is not a specific policy but a combination of types of insurance, typically including liability, collision, and comprehensive insurance. Liability covers damage you cause to others, collision covers damage to your car from an accident, and comprehensive covers non-collision damage (e.g., from theft, fire, or natural disasters).
The Value of Your Car
The first and most crucial factor to consider is the actual cash value (ACV) of your car. You can find this by checking sources like Kelley Blue Book or NADA Guides. As a car’s value depreciates, you should assess whether the cost of full coverage is proportionate to the risk of paying for potential damages out-of-pocket.
Rule of Thumb
A common rule of thumb is the “10% guideline.” If the annual cost of your full coverage insurance exceeds 10% of your car’s ACV, it might be time to consider dropping full coverage.
- For example, if your older car is worth $4,000, and the annual cost for full coverage is $400 or more, dropping to liability might make financial sense.
Risk Tolerance
Your decision should also align with your risk tolerance. Are you financially prepared to replace or repair your car if it gets damaged? If you rely on your car daily and don’t have savings set aside for emergencies, maintaining full coverage might be the safer choice.
Your Driving Habits
Consider how often, where, and under what conditions you drive. If you primarily use your car for short, local trips in low-traffic areas, you might face fewer risks than someone commuting long distances on busy highways.
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Other Factors to Consider
- Deductibles: Higher deductibles can lower your premium costs but mean higher out-of-pocket costs in the event of a claim. Weigh the savings against potential expenses.
- Discounts: Check if you qualify for discounts that might make keeping full coverage more affordable.
- Financial Situation: If you have a good financial cushion, you might feel more comfortable taking the risk of dropping full coverage.
- State Requirements: Ensure you meet the minimum insurance requirements in your state. Liability coverage is mandatory almost everywhere.
Making the Switch
If you decide to drop full coverage:
- Notify your insurance provider: Communicate your decision and adjust your policy accordingly.
- Set aside savings: Consider redirecting the savings from lower premiums into an emergency fund for car-related expenses.
- Stay covered: Even if dropping full coverage, ensure you have adequate liability coverage to protect yourself financially in case of accidents.
Conclusion
Deciding to drop full coverage on an older car depends on several factors, including the car’s value, your financial situation, and your personal risk tolerance. It’s essential to carefully evaluate these elements and possibly consult with an insurance professional before making a decision. This way, you ensure that you are adequately protected while also managing your finances wisely. Remember, the cheapest option isn’t always the safest one, but being over-insured on an aging vehicle isn’t financially prudent either.
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