When Should I Drop Full Coverage on My Car?

Jim Tice
Written on August 8, 2018

When is a car old enough to drop full coverage on it?

There are two major divisions of coverage on the auto policy.

      1. Liability.

This coverage is intended to cover the other person if you cause an accident or cause damage or injury. Liability is always necessary. It is, of course, required by state law, and you can cause an accident in an old car just as easily as in a new one.

      2. Physical Damage.

This coverage pays for damage to your car. Collision pays if you collide with another object. (a car, a telephone pole, anything other than an animal, etc.) Comprehensive (also known as Other Than Collision), pays for loss from such things as theft, vandalism, hail, glass breakage, and animal collision.

While it is obvious that a new car needs both types of coverage, it is also obvious that an old clunker that can barely make it down the road only needs liability. The question is, when is a car too old to carry physical damage coverage? Unfortunately, there is no easy answer.

If the car is financed, the lender is always going to require that you carry full coverage. 

Some financial advisors say you should drop physical damage coverage when the annual premium exceeds 15% of the car’s value. (If your car is worth $4,000, you shouldn’t carry full coverage is the annual premium for physical damage is $600 or more) Click here for a percentage calculator. While this is useful as a start, each person needs to consider personal circumstances when making the decision.

The purpose of insurance is to protect against financial catastrophe. If the value of the car is high enough that you can’t afford to replace it, you should probably continue full coverage. Then, weigh the premium against the amount you could collect.

Answer: Check the value of your car using a website like Kelly Blue BookEdmunds or Nada Guides. Then check your premium for full coverage, and your deductible. Does the annual premium exceed 15% of the car’s value? Is what you could collect worth the amount you are paying for the premium? Only you can ultimately make the determination if it’s time to drop full coverage.