Stop Overpaying for Car Insurance: Full Coverage vs Liability Only
Are you still paying for “Full Coverage” on a car that’s barely worth $5,000? You might be throwing money away. While “Liability” insurance is legally required, “Collision” and “Comprehensive” are optional once your car is paid off. Knowing when to drop them is the single biggest way to lower your bill. Here is the simple “10% Rule” to decide.
The 10% Rule Visualized: This scale shows why paying $800/year for full coverage on an older car worth only $5,000 makes little financial sense. The cost outweighs the potential benefit.
Image Source: bestmoneytip.com
1. The Three Main Parts of Your Policy
Before you cut anything, you need to know what it does.
- Required by law? Yes (in most states).
- Recommendation: Get high limits (e.g., 100/300/100) to protect your assets from lawsuits.
- Collision: Hitting another car or object.
- Comprehensive: Theft, vandalism, hail, deer.
- Recommendation: Drop it on older cars.
2. The “10% Rule”: When to Drop Full Coverage
This is the most important calculation for saving money. It helps you decide if the insurance cost is worth the potential payout.
Take the annual cost of your Comprehensive and Collision coverage. Divide it by your car’s current market value (check KBB or Edmunds).
If the result is more than 10%, consider dropping full coverage.