I chose to keep it ;-)

Personally I would say to drop collision /comprehensive if the insurance savings is going to be 25% or more of the value of the car and/or if the car is worth less than $2000. But the point at which you drop comprehensive is a personal judgement based on how much risk you want to tolerate.

I agree with David above that people should strongly consider getting more than the minimum liability requirement. I carry $100k minimums since to me it seems a given that any kind of serious accident would easily cost that kind of money and I don’t want my insurance coverage to fall short. It doesn’t cost a lot more to get a higher liability and for me its worth the peace of mind.

Jim

All the discussions about the high deductible assume that you’ll owe it once, then have time to replace that money. But, there’s no guarantee that you won’t have multiple incidents in a short time period, even if you’re a good driver. A few years ago, my husband’s car was rear-ended by a driver who left the scene and a week later was vandalized in our driveway. We had a $500 deductible and owed $1000.

If you have an older car that is going without collision/comp, you get to decide whether it’s totalled–which is an advantage. In 1996 I had an 85 Honda Accord that suffered serious damage after my husband side-swiped a semi. An insurance company would have totalled it, but I didn’t have coll/comp on it. I went to an independent body shop for an estimate on fixing it. I have to admit, I even cried a bit when the verdict was $2500. Then I suggested that the car didn’t need new parts, surely there were 85 Accords in junk yards? The repairman suggested that surely I could pay in cash? Yep. That reduced a $2500 repair job to $950. I had that car until 2000 and sold it, still running, for $1200.

My understanding is that if you are ever without these, or don’t have it very high, and you are at-fault in an accident that someone is hurt in, when they sue your insurance company (which they will, at least for medical bills, maybe more) – if your insurance doesn’t cover the amount they sued for, *you* have to cover it.

Usually insurance companies settle for the max amount in your insurance, but you can not depend on them doing that. Its one thing to worry about repairing your car, or buying a new one, but if you end up owing 100k above what your insurance covered, it will be a long time before you are financially stable again.

Also, I dont’ know if I agree about if you have enough in savings to cover a replacement car you shouldn’t have collision insurance. What if you buy a brand new car, and you have $50,000 in savings, so $25k would be plenty to replace it. Does that mean you shouldn’t have collision on your brand new $25k car? I think that comparing the cars value to the cost of a potential repair is a better gage.

Hopefully there will be significant savings in your near future!! ;)

One thing not mentioned was the element of risk. Insurance is a means to manage risk whether you have the money or not. If you don’t have enough to be self insured (emergency fund), then not having insurance is not an option. However if you do have the money, it might not always be best to carry low insurance. It depends on where you keep your risk (and how much you have). If you have low risk in other places (investments, income, liabilites etc) then having a higher risk on your car would not be a big deal. But if you are exposed to risk in other places you might be better off paying for higher insurance (reducing risk) and keeping your funds in a more risky investment (large risk exposure). It all depends on the numbers.

Basically, if your emergency funds are held in a real investment and not a savings account you might actually get a higher return, then if you reduced your insurance and held them in savings. The idea is that you want to have the least amount of risk and the most amount of return. Higher return – marginal cost of increased insurance = max return. It all depends on what you get as a return, and what the additional insurance costs.

But if you can’t get a premium return on your emergency fund, then reducing your insurance is the best way to maximize your return (in this case not paying for extra insurance/risk management) and minimizing your risk. For me personally, I like to risk my emergency funds at a medium level (stocks and business), hoping to get a medium return, therefore my best choice would be to carry medium insurance (not low). Carrying less would be increasing risk exposure, and carrying more would be overlapping/overpaying.

Of course, if you are talking about 3K cars, this might be a mute point. But if you have a few nice cars, then you can start to see the reason for managing risk exposure.

Just my two cents. Keep up the great articles.

BTW, Trent, this post prompted me to leave a message with my agent Saturday to get back to me Monday about raising my deductible. :-)

Your are right in that your premiums will increase when you get into an accident regardless.

But in regards to choosing either a $500 or a $1000 deductible on your insurance rates. You need to look at the cost difference between the two policies per year and decide if the savings is worth the risk.

In my calculation, I would only have to drive a little over a year without an accident to come out ahead. In other words I would have saved more in insurance permiums than the additional $500 deductible I would have to pay in the event that I had an accident.

This winter I fishtailed during a blizzard (had to go to work, it didn’t look like a blizzard at 8 a.m.) and hit a pretty nice mini-van. My bumper was shot and her driver’s side door needed to be replaced. Thank bob for my $100 deductible. The cost without it would have wiped out my entire emergency fund at the time plus some. For me, building my finances and cushions up is worth the little extra cost (I pay about $34/mo because our agent lets it stay bundled with my parents’ policies).

At this point in my life my insurance works for me.

The other thing to think about is a personal liability umbrella. If you have any assets at all, or anticipate having any in the future, it’s smart to have a personal umbrella that provides liability coverage on top of both your auto and homeowner’s liability coverage (one policy, sits on top of both). The cost isn’t usually that high, and if you cause a really serious accident and your liability limits are not sufficient to indemnify the other party(s), the personal liability umbrella will step in to make up the slack. Scrimp and save all you want on collision and comp, but make sure you have lots and lots of liability insurance!