Questions to ask yourself before dropping full coverage
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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 just liability coverage. This is the insurance coverage most states require for all drivers. 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 (PIP).
On the other end of the auto insurance coverage spectrum is full coverage. Full coverage insurance starts with the basic state-mandated liability and builds from there to include a variety of other coverages.
Ultimately, there’s no single car insurance product called full coverage. Instead, “full coverage” is a term used to describe a variety of protections you want and need for yourself and your vehicle.
Types of coverage you might include for full coverage insurance
Full coverage means different things to different providers and situations. However, if you’re looking for full coverage, you’ll probably want 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’re involved in an accident and another person is injured.
- Property damage liability: Also a basic coverage that’s required in most states, property damage liability pays up to the policy limits for damage you do to another person’s vehicle or property.
- Personal injury protection (PIP): PIP helps cover things like medical expenses for yourself and your passengers in the event of an injury from a car accident. It might also include income continuation, loss of services, funeral expenses and child care expenses.
- Uninsured/underinsured motorist: If you’re in an accident where the at-fault driver doesn’t have insurance — or enough insurance to cover the damages — your uninsured and underinsured motorist coverage pays for the costs
- Comprehensive: When your policy includes comprehensive coverage, you’re covered up to a certain amount for non-collision-related damage to your vehicle from causes like storms, fire, broken windshield and vandalism. It also protects your car against theft. 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. The only exception would be if someone else causes an accident and their liability coverage steps in for your vehicle repairs. 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. You might need this when there is a total loss on the vehicle but you owe more on it than its actual cash value.
When can I drop my full coverage car insurance?
Most states require certain levels of auto insurance (namely, liability coverage) 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, there are some things to check first.
Consider dropping full coverage car insurance when…
- You’re insured for more than your car’s 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.
- Your car has a lot of miles on it: 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.
- You own your vehicle outright: If you have a loan on your vehicle, the chances are high that your lender will require a certain level of insurance coverage. But if you don’t finance your vehicle and are still carrying full coverage, you can check into lower-cost options.
- Your policy cost doesn’t fit your budget: 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.
Do I need full coverage on my car?
It really depends on your car and your risk tolerance.
For example, say that you pretty much always park your car in the garage overnight where it’s protected from thieves and falling tree limbs. You might not need comprehensive coverage in this case. But keep in mind that without it, if someone nabs your car from the grocery story parking lot, you’re on the hook for replacing it.
Basically, the more your car is worth, the more you’re going to get out of your auto insurance policy. Which leads us to another question.
Do I need full coverage on my used car?
If you’re considering dropping full coverage, calculate the worth of your car. If you’re driving something of a junker, evaluate the cost to replace it against the cost of your auto insurance policy. If you’re paying more in premiums throughout the year than your car is even worth, you probably don’t need full coverage.
What coverage do I need?
This depends on each driver and their unique circumstances. That’s because the right coverage level all comes down to your unique needs and risks. If you have a cushy savings account and could easily pay to repair your vehicle, you might decide that you don’t want to pay for comprehensive coverage, for example.
But if you’re living paycheck-to-paycheck, you might want more coverage, as counterintuitive as that seems. You’ll need to figure out how to fit your car insurance premiums into your budget, but you save yourself from a much bigger, unexpected expense if something happens to your vehicle.
There’s another potential factor at play here. If you’re financing or leasing your vehicle, your lender might require you to carry certain coverages.
If you’re not sure what coverages you should have, we recommend calling your insurance provider. One of their agents can talk through your options — and the cost of each — with you so you can make an informed decision.
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. The average annual premium for this type of full coverage policy is $1,555.
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 don’t have an emergency fund to cover the payoff of the totaled vehicle, you’ll 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 in some states. Where credit checks are allowed, insurance underwriters see individuals with higher credit scores as less of a financial risk and as a result, reward them with lower premiums.
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 necessary. In that case, the decision to drop full coverage must be a personal choice. However, if you’re 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.