April 21, 2014
When would it be wise for someone to select liability coverage on their car instead of full comprehensive coverage?
When would it be wise for someone to select liability coverage on their car instead of full comprehensive coverage?
You would want to do that if your car is not worth very much at all and your premiums on the full coverage will cost close to the amount of the car after the deductible, a car that is only worth 2000 dollars will likely have a $1000 deductible on it, and if you are spending $500 a year to cover it with that policy, you will be worse off having the coverage in 2 years. While a decent liability policy may only cost you $100 a year if you are a safe driver and not a teenage male with a sports car. Its important to waver the benefits with the costs, a 1994 toyota camery’s total replacement value is only $1200 so a total policy may not be very wise on a car like that even if its in good shape and a nice car, the car is only worth what the insurance company will cover it for in this instance.
Its worse off having that car insured under that policy in 2 years, not worse off having that car in general.
Nice job in explaining the issue, Garrett. Let’s review.
Full coverage car insurance (comprehensive, collision and liability) is required when you have a lien on the car (the bank owns it, you are just renting). When that car is paid off, you will have a decision to make. Do you need full coverage insurance? Sometimes the answer is yes and sometimes the answer is no.
It is wise to keep your deductibles high (reduces yearly premiums), in this case let’s say you have selected a $1,000 deductible. Just as Garrett stated, if you crash your $2,000 car and total it, you will only get back $1,000. Not a very good deal. If you crash your $10,000 vehicle, well then that is a better deal. Where is the cutoff when it comes to dropping full coverage insurance?
There is no perfect number. One number to consider would be $5,000. If your car is worth more than that, full coverage might be the wise choice. If the car is worth less than that, liability only might be the right choice. All of this should be reviewed carefully based on your own particular situation. Educate and ACT!