When do I drop full coverage car insurance?

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Here's what you need to know...

  • Full coverage isn’t a box that you can check. By most definitions, it is auto insurance is a policy that provides comprehensive and collision coverage.
  • Under state insurance law, there are no requirements that say that a vehicle owner must protect their own property with physical damage coverage
  • State law requires you to carry liability or no-fault coverage
  • If you’re contemplating dropping your full coverage, you must own the vehicle and hold the title in your hand first
  • All vehicle owners should know what the Actual Cash Value of their vehicle is when they’re making an informed decision
  • A common rule of thumb is that you should keep full coverage until the value of your car is worth less than 10x your annual premium for damage coverage
  • It’s possible to drop collision coverage and to keep comprehensive coverage if you still want protection against perils like fire, theft, vandalism, falling objects or explosion

You’re never going to find an auto insurance policy that protects you against every little thing that can happen while you’re driving your vehicle. While all policies have their gaps of coverage and their limits of liability, full coverage policies provide a lot more protection than basic policies. Compare car insurance rates now by using our FREE tool above!

When you buy a vehicle new or lease a car, you’ll initially start with a full coverage plan.

Carrying full coverage auto insurance is often a choice. Since this choice costs you money, it’s one that you might get rid of quickly without giving much thought. Unfortunately, when you delete full coverage and you experience a loss, there’s a long list of scenarios where you won’t have coverage. This is why it’s important to sit down and do a thorough cost-benefit analysis before you officially drop any optional cover.

What is full coverage auto insurance?

As much as the term full coverage is used in the auto insurance industry, it can be surprising to learn that there’s not just one definition of what full coverage is. Full coverage is really just insurance jargon that’s used to describe a policy that carries more than just the bare minimum coverage that’s required under state-mandated insurance law.

While there isn’t an official definition, all full coverage plans include some basic coverage types. These coverage types will provide the vehicle owner with protection after the policyholder or a covered driver is in an accident or other type of incident. Here are some of the characteristics of a full coverage plan:

  • A policy that includes liability coverage, uninsured motorist and medical payments coverage
  • A policy that includes comprehensive and collision coverage for the covered auto
  • A policy that includes coverage required by your lender or lessor listed on the policy
  • A policy that includes extra protection to help after a breakdown

How does full coverage protection differ from liability-only protection?

You’re obligated by law to carry liability insurance. Whenever you own a vehicle, it’s your duty as the vehicle owner to buy insurance that’s required under state law in the state where your car is registered. Surprisingly enough, the state that you live in doesn’t require you to protect your own property.

State insurance laws are in place to help pay for third-party damages when you’re negligent for damage.

Liability-only protection helps you pay for the damages that you’re liable to pay for. Full coverage protection, on the other hand, has coverage options that help you pay for your own damage so that you can recover and rebuild following the loss.

When do you have to have full coverage?

When you register your car, the Department of Motor Vehicles isn’t really worried about your physical damage coverage. It’s not the DMV or the traffic courts that ask you for proof of full coverage, it’s your lender. Under your lending or lease contract, it states that you must protect the collateral on the loan by fully insuring it. Failure to do so is a violation of the contract.

What happens if you drop your coverage before your contract ends?

Insurance for a financed car typically costs more because of the full coverage requirement. While a majority of borrowers maintain full coverage, there’s always a few who don’t obey the rules.

If you don’t carry the required coverage, you could lose your loan or increase the cost of financing.

It’s most common for finance companies to force-place insurance after requesting proof. If you don’t respond, the forced-placed insurance premiums will be added to your loan balance. This doesn’t just add to your interest costs, it also extends the loan. Not to mention the fact that the coverage only protects the lender.

How is your car valued by your insurance company?

Auto insurance companies must have a very detailed process when you file a claim. The process must be followed for every claim filed. One step in the process is to value the property that’s been damaged. You might not care until you file a claim, but it’s important to know the process beforehand if you want to make informed decisions.

As you do the cost-benefit analysis and you find that it costs more than it benefits you to carry full coverage, it’s time to drop it. One way to do this is to assess what the Actual Cash Value of your car is much like the insurers do. Here are some of the ways that value is determined by a claims adjuster:

  • Review of sales records through private parties and dealers
  • The use of car valuation guides like Kelley Blue Book
  • Use of sales receipts and repair bills to value aftermarket modifications
  • Comparative reports from around the area
  • Current vehicle listings in the area

What is the common rule of thumb?

There’s no surefire way to decide if you’d be best off removing full coverage from your policy, but there are a few rules that can help you. As you compare the cost of comprehensive and collision premiums, it makes the most sense to drop full coverage when your car’s value isn’t more than 10x the cost of these annual premiums.

Is a comprehensive-only policy an option?

Don’t overlook the option to carry only comprehensive. This protects your car from fire, theft, vandalism and other non-collision losses for a minimal cost. If you’re concerned with theft, vandalism or damages sustained while your car is stored, this is a good alternative.

If you feel like you’re paying too much for coverage, you should compare premiums with several different carriers.

Seeing premiums through several carriers will help you assess the actual costs more thoroughly. The easiest way to do a cost-benefit analysis is to use an online comparison tool. After comparing costs, look at the value of your car and make a choice. Enter your zip code in our FREE tool below to compare car insurance rates instantly!

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