Things to consider before dropping full coverage on your car insurance

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Does your auto insurance premium or the age of your car have you questioning if it may be time to drop your full coverage insurance? Whether you need full coverage or not depends on if you own or finance the vehicle, its value and your desired coverage levels. While it never hurts to check into your options, consider important factors before making a final decision to drop full coverage auto insurance. 

What is full coverage? 

If you have basic coverage, you probably have a policy with liability coverage only. Although auto insurance minimum requirements vary by state, most basic liability coverage includes bodily injury liability and property damage liability. Some states also require uninsured or underinsured motorist coverage, medical payments coverage and personal injury protection. 

On the other end of the auto insurance coverage spectrum is full coverage. Full coverage insurance starts with the basic state-mandated liability includes a variety of other coverages too.  

Types of coverage included in most full coverage insurance

Full coverage means different things to different providers and situations. However, most of the time full coverage will offer some coverage in the at least a few of the following categories:

  • Bodily injury liability: This is a basic coverage included in most minimum requirement auto insurance policies. Bodily injury liability helps pay for things like medical expenses, lost wages and legal fees if you are involved in an accident and another person is injured. 
  • Property damage liability: Also a basic coverage, property damage liability pays up to the policy limits for damage done to another person’s vehicle or property. 
  • Personal injury protection: This coverage is also referred to as medical coverage. It helps cover things like medical expenses for yourself in the event of an injury from a car accident. It might also include income continuation, loss of services, funeral expenses and childcare expenses. 
  • Uninsured/underinsured motorist: If you are in an accident where the at-fault driver does not have insurance or enough insurance to cover the damages, your uninsured and underinsured motorist coverage pays for the costs . This type of coverage is broken down by bodily injury and property damage. 
  • Comprehensive: When your policy includes comprehensive coverage, you are covered up to a certain amount for non-collision related damage to your vehicle from causes like storms, fire, broken windshield and vandalism. Many people think comprehensive insurance is the same as full coverage. However, while full coverage wouldn’t be possible without comprehensive coverage, comprehensive alone is not enough to qualify as full coverage.
  • Collision: With full coverage, comprehensive and collision coverage go hand-in-hand. Comprehensive covers all things non-collision while collision covers all things collision-related whether you hit another vehicle, another vehicle hits you or you hit an object. This type of coverage is generally required by the lender if you are financing the vehicle. 
  • Gap insurance: This type of coverage covers the difference (or gap) between the amount you owe on the vehicle and the vehicle’s actual cash value. This is needed when there is a total loss on the vehicle but you owe more on it than what it’s actual cash value is. 

When can I drop my full coverage car insurance? 

Most states require certain levels of auto insurance at all times, but you can technically drop full coverage whenever you want to. You should decide if full coverage is worth it to you depending on how much risk you would take on without it. 

If you have full coverage and are considering dropping it down to more basic coverage, here are some things to check to decide if you can afford the risk of dropping coverage:

  • Car’s age and replacement value: Most standard vehicles depreciate in value as they age. If you have a vehicle that, if totaled, would result in an insurance payout of $5,000 but you’re covered for over $10,000, you may be paying for more coverage than you need and should consider lowering coverage amounts.
  • Car’s mileage: Higher mileage vehicles are often cheaper to insure. This is usually a direct correlation to the vehicle’s value as most cars have a life expectancy of about 200,000 miles. If you drive a high mileage vehicle but are paying for full coverage, you may be over-insured.
  • Loan: If you have a loan on your vehicle, the chances are high that your lender will require a certain level of insurance coverage. It is important to know this and maintain that level of coverage. But if you do not finance your vehicle and are still carrying full coverage, check into lower-cost options.
  • Policy cost: A general insurance rule of thumb is that you should maintain coverage levels you can afford while also having enough coverage to avoid financial hardship in case of a vehicle loss. If you currently have an insurance policy you cannot afford, speak with an insurance agent about other, more affordable options. 

What is the average cost of full coverage?

Insurance policies including full coverage will vary in annual cost by your age, driving record, location, vehicle age and vehicle type. There is no specific policy called a “full coverage insurance policy” because, as we described above, full coverage means different things. 

For the purposes of this guide, we reviewed policy rates including liability, personal injury, uninsured/underinsured motorist, comprehensive and collision. These policies had a $500 deductible including $50,000/$100,000 bodily injury and $50,000 property damage. The average annual premium for this type of full coverage policy is $1,548 compared to an annual premium of $620 for basic liability coverage.

Does canceling my full coverage car insurance affect my credit? 

The quick answer is no. Canceling your full coverage car insurance will not affect your credit, negatively or positively. 

However, there could be some results of canceling your car insurance that can impact your credit. If you drop your coverage and have an accident that totals your car but you still owe money on that car to a lender, what will happen? If you do not have an emergency fund to cover the payoff of the totaled vehicle, you will see a negative impact on your credit score. 

On the flip side of this, your credit score does have an effect on the insurance rates you will qualify for. Insurance underwriters see individuals with higher credit scores as less of a financial risk and as a result, reward them with lower premiums. 

The takeaway

Whether you need an auto insurance policy that includes full coverage depends on your financial situation, your driving situation, whether you own the vehicle or borrowed from a lender, and the age, replacement cost and mileage of your vehicle. 

If you are driving an older vehicle that you own, you are probably over-covered and paying more for auto insurance than you need to. In that case, the decision to drop full coverage must be a personal choice. However, if you are driving a much newer vehicle, your lender requires full coverage or if you would be in financial hardship without the coverage in an accident,full coverage is the best choice. 

There is no across-the-board right or wrong answer about when you can or should drop full coverage on your car. Research your needs and talk with your insurance agent about the right option based on your situation.

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