Pros and Cons of Cutting Auto Insurance Coverage

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The internet is now littered with ways to save money on auto insurance–lower liability limits, raise deductibles, and eliminate ‘extra options’ on policies like rental car coverage. Will this save you a few dollars a month? Sure, but will it absolutely guarantee you’ll save money indefinitely? Not at all, and you may be doing yourself a huge disservice. At times, it may make sense, but once you thoroughly understand auto insurance, you’ll know it’s usually not worth the risk.

What to Consider Before Cutting Coverage

Lowering Liability Limits

This is by far one of the worst decisions you can ever make with auto insurance, and if you really think you’ll save tons of money by lowering liability limits, just check insurance quotes from a few companies—you’ll quickly find that getting an extra $100K or $200K in liability coverage may save you mere pennies or maybe a few dollars at the very most. The best rule of thumb to follow? Don’t cut your liability limits, always raise them as high as you can afford.

Raising Deductibles

If you have a great driving record and you have ten years or more of driving history, you can probably lower your collision deductible without much difference in your monthly rate. Carrying high deductibles will definitely lower your premium, but whether it’s significantly or not, you won’t know until you see the dollar amount while playing around with it in insurance quotes. Although the amount isn’t a sure thing, one thing is for sure—there’s no point in raising your deductible, thus making the amount of money you have to pay out of pocket higher if you can be responsible for paying LESS money if something happened. Saving $2 a month from raising your collision deductible from $500 to $1K is not significant savings, but $500 extra out of pocket—and suddenly—if you have an accident is.

Additionally, comprehensive is typically less expensive than collision, so it does not usually cost much to reduce the deductible.

Don’t assume that keeping all your deductibles at $500 is the best way to go. If you discover that you only pay $50 a year more to decrease your deductibles to $250, then it makes sense to do so. Why set yourself a high out-of-pocket expense for a claim of $500 when you can pay just about the same amount for your insurance with a $250 deductible?

Excluding Extras

You might save a dollar here or there by excluding any extras, but the convenience of having them may quickly outweigh the cost.

  • Medical coverage isn’t just for you–it’s for any passengers in your car. If you frequently have riders who aren’t covered under your health insurance, consider keeping it. Personal health insurance often refuses to pay for medical bills related to car accidents. With or without personal health insurance, you should never get rid of med pay and always buy as much as possible.
  • Roadside assistance and/or towing and labor are others to consider. It can cost upwards of $100 or more to be towed, so without this, you could end up paying a lot out of pocket that may be more than what you pay for the coverage to begin with. Roadside assistance can be extremely convenient, covering things like an empty gas tank. If you live on your own, don’t have roadside assistance elsewhere, live in an area without lots of friends or family, or are new to an area, you shouldn’t cut this coverage.
  • Rental car coverage isn’t one to cut quickly either. This provides you with a rental if your car is in the shop for a claim and you need to get back and forth to work or get the kids back and forth to school and activities. Life won’t stop just because your car was in an accident. The cost to rent a car on your own could cost you hundreds–far more than the coverage would cost on your policy.

When It Makes Sense to Cut Coverage

There are times it’s not worth it to cut coverage. Insurance is there to absorb financial losses, so by chipping away at coverage, you’re diminishing the value of insurance.

However, there are times it may make sense to cut coverage. This totally depends on your finances, vehicle, driving history, and age, and the best way to determine whether it’s worth it requires you to know what affects premiums. Play with variables when receiving insurance quotes and compare numbers–and what you’re eliminating.

Lowering Liability Limits

No matter what, you should NEVER lower liability limits to save money. The amount of money saved on premiums isn’t significant, and the amount you may need if there’s an accident make higher limits worth it.

Increasing Deductibles

Perhaps the most notorious method of reducing premiums is increasing eductibles—which makes sense IF your driving history is less than perfect.

If you have a great driving history, are incredibly cautious, and your history shows an absence of accidents, raising your deductibles might make sense. If your car is worth $1500, your deductible is $500, and you pay $100 a month for collision coverage, you’re losing money. You’re better off putting that extra $100 in a savings account so if or when you need to replace your car, you have money to do so. Just remember that anyone can have an accident.

Also, younger policyholders who have had one or two occurrences stand to save more money with higher collision deductibles.

If you have a sporty car that is high on car thieves’ lists, and you have a less-than-perfect record, you’ll probably pay more premium for comprehensive coverage and may save money by increasing deductibles.

Cutting Optional Coverage

  • Medical coverage should never be completely removed since most personal health insurance won’t cover medical expenses from car accidents, so you should always keep at least some med pay. If you do need to cut some corners, this is one of the better places to do so, as you can decrease the amount of coverage and still save money without completely eliminating it.
  • Roadside assistance and/or towing and labor can be superfluous to carry if you’re offered roadside assistance through your car manufacturer or another service, like Triple A, especially if you drive a new vehicle, which is less likely to need roadside assistance anyways.
  • Rental car coverage may make sense to cut if you don’t drive often (for example, if you live in a city with great public transit) or if you have a second vehicle to drive, like a spouse’s car

It may sound like a lot, but when you’re getting insurance quotes, use this rule of thumb—keep liability limits at 100/300/100 or higher, get quotes with varying deductibles for collision and comprehensive coverage, and use the above to consider each extra coverage. It does require a bit more analyzing than you may like, but that’s insurance—analyzing every possibility and being prepared for it.

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