Driving an Older Car? Save By Dropping Collision and Comprehensive Coverages

If you're driving an older car, like this 2000 Honda Accord, consider dropping collision and comprehensive from your car insurance policy. (olx.com)

Something interesting has been taking place on American roads over the last decade. Our cars have been getting older, and the average age of a vehicle being driven in the United States during 2011 increased to 10.8 years old.

According to Polk, which provides market intelligence on the automotive sector, the average age of a passenger car in the United States has increased in age since 2010, from 11 years to 11.1 years old. Light trucks, which include both pickups and SUVs, showed a more sizable gain, increasing from 10.1 years to 10.4 years.

Keeping an older car running isn’t just a way to save money in regards to not making a monthly payment on a car, but it also offers plenty of opportunity to save on your car insurance premiums, too.

And many families have done just that, dropping their levels of coverage on insurance and assumed more risk for themselves, according to a new study conducted by analytics firm, Quality Planning. They conducted a study utilizing data collected from 2006-2010, and found that many were dropping coverage on cars that were 10 years or older.

Other sources have shown similar trends. According to the National Association of Insurance Commissioners (NAIC), 53 percent of households in the United States have taken steps to reduce their vehicle expenditures.

These steps included 40 percent of households taking advantage of the benefits of public transportation. 20 percent of families sold their car and got a cheaper one, or gave up a second family car.

More troubling, however, are the 20 percent of families that either reduced their coverage (smart strategy) or dropped car insurance coverage completely (horrible decision). We’ll get into why dropping coverages is smart in just a bit, but we’ve got to caution any driver to beware of dropping their coverage completely.

In 49 states and D.C., you are required to show financial responsibility and failure to do so is a crime. Fines and penalties on failure to carry liability insurance have been steadily increasing over the years, and you’ll pay more than just in monetary terms if you’re caught driving with no insurance.

Why Dropping Collision and Comprehensive Makes Sense

We’ve long advocated dropping comprehensive and collision insurance on older cars. In fact, it’s one of our 10 primary steps to lowering car insurance costs. And the majority of consumers do exactly that.

A full 63 percent of cars on the road that are more than 10 years old are now only covered with state minimum liability. That’s a staggering increase of more than 10 percent in just a couple of years.

Collision coverage is intended to protect your car, rather than your responsibilities to others. And rates are normally high, regardless of the actual worth of your automobile. If you’re driving an older car that you could easily replace, you can save an average of $229 annually just by dropping this coverage.

Our general rule of thumb is the less your car is worth, the less protection it needs. Beyond a lender requiring it when you finance or lease, we find collision to be a smart buy if you drive an expensive car. But if you’re driving a cheap one – think in the range of $2,500-$5,000 or less – it may cost you more in premiums than you’d ever receive in return from filing a collision claim, even one that involved a total loss.

Comprehensive coverage is a bit different than collision. It isn’t uncommon to hear agents refer to comprehensive policies as “other than collision” insurance. And it covers you for a large swath of bad things that can happen to your car not involving a car crash.

Scenarios where comprehensive would pay include: having your car stolen, natural disasters and other acts of nature or acts of God. So if your car were flooded by a hurricane, it’d be covered. Same goes for situations such as when a tree limb falls onto your car. It just wouldn’t pay if you hit the tree.

As with collision, comprehensive is a must if you’re driving a car with significant value. However, compared to collision, which makes up to 50 percent of the cost of a car insurance premium, comprehensive is a bargain, coming in at 5 to 15 percent of the total premium.

So if you’re driving an older car that isn’t very valuable, we encourage you to talk with your agent about eliminating collision coverage completely to garner the cheapest car insurance rates. You may also want to ask about reducing or eliminating comprehensive coverage too, so you can reap the biggest savings possible.

Share this post