How I Know When to Drop Collision & Comprehensive Auto Insurance

Although we refuse to admit it, everybody is occasionally guilty of holding on to things a little longer than they really should.

I often question the Honeybee’s motives regarding her proclivity to keep around old birthday cards and our kids’ elementary school papers. If you’re interested, I’m sure she can show you the very first perfect score Matthew ever received on a spelling quiz he took in kindergarten. Never mind that our son is now a high-school sophomore — or that our closet is getting really full.

Whenever I ask the Honeybee why she refuses to toss stuff like that in the trash after all these years, she always comes back with the same frustrating response: “Hey, you never know.”

I guess that’s true, but it defies all sense of reason.

Before you accuse me of throwing rocks from my glass house, I realize I’ve got my own issues with being unable to let go, too.

I remember the time I stubbornly refused to part company with my trusty — but very old — barbecue grill, even though it was clearly ready for the scrap heap.

Don’t laugh, ladies. The truth is, most guys tend to get attached to their barbecue grills the same way they get attached to their dogs. It’s practically a law of nature, as sure as the sun rises in the east and sets in the west.

I know a lot of folks make the same mistake when it comes to keeping the collision and comprehensive coverage on their auto insurance — especially people like myself who drive older cars. Don’t think I didn’t keep that in mind earlier this month when I was renewing the insurance my 1997 Honda Civic and 2001 Honda Odyssey.

We all need liability insurance, which ¬†protects us from damage we do to others or their property. However, that’s not necessarily true for collision and comprehensive insurance which covers:

  • repairs or replacement to your car if you’re in an accident that’s your fault.
  • losses caused by theft, vandalism, natural disasters, and other events.

Why? Because, ¬†oftentimes the ¬†potential benefits derived from insurance may not be worth the premiums when compared to the actual risk — at least for folks who have the means to cover the total loss of their vehicle.

Of course, that requires making a few assumptions and then running the numbers.

To help me make my decision, I used a spreadsheet to summarize the comprehensive and collision premiums my insurance company was offering on each vehicle, and evaluate the potential coverage benefits. Here’s what it looked like:

Before I could make a proper analysis on whether or not comprehensive and collision insurance was worth the price, I had to determine the replacement costs of the vehicles being insured. I used the Kelley Blue Book private-party sale figures to help estimate the value of both my cars. For the 2001 Odyssey, that’s approximately $5250.

The next step was to determine the actual benefit of each type of insurance. I determined those values by subtracting the applicable deductibles from the vehicle replacement costs. For example, the Odyssey’s collision insurance benefit was $4250.

Now here’s where the rubber meets the road. Based upon an annual collision premium of $88, it would take about 48 years ($4250/$88) before the total premiums paid would surpass the Odyssey’s replacement cost. Whether that is a good deal — or not — depends on how often I expect to get into an accident that would total the vehicle.

In my family’s case, our driver accident rate is, conservatively, roughly once every 20 years. As a result, I decided to keep the coverage on the Odyssey since I would expect to pay, at that premium, slightly less than half the mini van’s total replacement cost over that time period before making a claim. I kept the comprehensive insurance on the Odyssey for the same reason.

As for my trusty Civic, well, that was a different story. After running the numbers, I decided to drop the collision insurance because, with an annual collision premium of $77, and a potential insurance benefit of just $750, it would take less than 10 years before the premiums paid to the insurance company surpassed the car’s replacement value — a period far shorter than our historical driver accident rate of once every 20 years.

Naturally, before estimating your personal accident rate, you’ll want to take into account changing factors including your past and future driving habits. For example, if you expect to begin racking up more miles because of a longer commute, it may make sense to assume that your risk of getting into an accident will increase somewhat.

On the other hand, you may be able to assume your accident rate will actually decrease if you’ve become a more defensive and responsible driver over the years — or if you plan on winning the lottery and becoming wealthy enough to eventually hire a chauffeur.

Hey, you never know.

Photo Credit: Commodore Gandalf Cunningham



Comments

  1. 1

    says

    For me it was having a baby. Previously, my driving record was perfect. 20 years without a claim, then 3 over the last 3 years! My last insurer told me they wouldn’t cover me anymore…! I put it down to lack of sleep and thus lack of concentration. Kids eh?

    • 2

      Len Penzo says

      Well, Matt, I figured the risk of having an accident would decrease a bit after having kids, assuming parents would drive more defensively. I never considered the reverse angle due to lack of sleep or concentration. :-)

  2. 7

    Derek I says

    Lucky you, you have the choice. I’m in socialized car-insurance land in Manitoba, Canada, where the premiums on my $3,000 Suzuki are basically the same as a new $30,000 Toyota. And I *don’t* have the option of dropping collision coverage. I pay 34% of my car value in premiums each year.

    • 8

      Len Penzo says

      Wow, that really sucks, Derek. I had no idea Canada had socialized car-insurance to go along with their socialized medicine. What’s next?

  3. 9

    says

    Shouldn’t one’s ability to absorb a total loss of a car play a role in this decision? For example, for those in the unfortunate but popular circumstance of having no savings and living paycheck to paycheck, dropping collision & comprehensive coverage, then totaling the car, could leave them without wheels for quite a while, jeopardizing employment and generally making life miserable. Even a small insurance payout might help with getting a new, used car. What do you think?

    • 10

      Len Penzo says

      You’re absolutely right, Kurt. I really should have put that disclaimer in the piece. (In fact, I am going to go back and add one in the article, because it is important.)

      In my case, I have enough resources available to absorb a total loss.

      Thanks for the reality check. :-)

  4. 11

    SassyMamaw says

    I’m wondering if you factor in how many years it’s been since you last had an accident, Len?

    If you average one every 20 years, and it’s been 15, does that mean you’re due? If that is the case, do you keep the insurance?

    Can you tell I’m over-thinking this? lol

  5. 13

    says

    We keep our car (Merc A-class) comprehensively insured in the UK even though it does very few miles (12,800 in three years). The other option is called 3rd party, fire and theft and the trouble there is that if you are in an accident, you have to chase the other party to recover the cost of repairing your car. We also have a very long no-claims bonus – it was over 20 years ago that I wrote my BMW 528 off!

    The other question to ask is whether you actually need a car. Given the high insurance premiums and costs for young people, city living with reasonable public transport suggests it is better to use the bus/tram/train or even taxi.

    • 14

      Len Penzo says

      Wow, a 20-year no-claims bonus! That must be significant.

      The 3rd-party F&T seems like it wouldn’t be worth the hassle. At any price.

      As for big-city living, I agree. Big-city public transportation does tend to lessen the need for having a car — unless you live in Los Angeles, that is. Despite their rapidly improving public transit system (did I just say that?), L.A. is just too dang sprawled out to allow most folks to get around without at least some kind of beater vehicle.

      • 15

        says

        I can’t imagine relying on public transport in LA for anything time critical. Between buses that don’t honor their lines and trains which don’t run on time (actually, the biggest issue is they don’t go where you want them to), you’re better off taking a cab.

  6. 16

    says

    I’ve got one of those grills, I replaced the burners 3 or four times and the flavor bars more than that. But those new
    Webers with the side burner that I crave are outrageous.

    This may be the year….

    As to collision on our vehicles, I’ve been rear-ended twice in my 40 years of driving. The wife has only backed into the kids car in the driveway once-we’ve been very lucky. But the day I drop collision, I’m sure I would run into something…

  7. 18

    says

    Did you write this to make me feel guilty??? We have 2 old cars too. I didn’t check (because I’m away from my desk), but if memory serves, I’m holding collision as well. (without doing any calculations) I like the idea of dividing the annual premium into the payout for the car. That’s a good idea! I think I can manage that. (BTW, our cars are newer than yours; a 2003 honda and a 1998 isuzu :)) It was fun yesterday on the radio show.

  8. 19

    Mark Hrozenchik says

    The other thing to consider is exactly how much you plan on recovering from the insurance company in the event of a totaled automobile. That’s REALLY where the rubber meets the road; in fact, I would say that’s the only test that matters. But here’s the kicker; call your insurance company and ask them what the replacement value is, and they can’t/won’t tell you (I just did it!). It could be – and based on some anecdotal experience – far less than the Kelly blue book value. Otherwise, how can you tell really whether it makes sense to keep or not?

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