When to make the switch to liability only auto insurance is a question we get a lot. But many people simply have trouble figuring out the “right” time to do it. So, if you’re struggling with this decision, I’m going to share a tip I use with my own clients.
I’ve heard lots of fancy, academic-sounding answers, that quite frankly, don’t make much practical sense to the average customer. And I believe in practical solutions. So if you’ve got an older vehicle and are still trying to make a decision whether or not to make the change, I’m sharing a resource to help you decide.
Warning– this paragraph is a quick review of the definitions for liability, comprehensive and collision coverage. If you’re familiar with the terms, skip to the next section. Quick review- liability pays for bodily injury or property damage you cause to a third party. Comprehensive covers damage to your vehicle from animal hits, glass breakage, falling objects, vandalism, theft, fire. Collision covers non-animal accidents, overturn or upset of your vehicle. Many people mistakenly say they have “FULL” coverage. There is no such thing. Please quit using it. Also, you can have comprehensive without collision, but it doesn’t work in reverse. To have collision, you must have comprehensive.
Here’s some background info how insurance companies pay auto claims
When a vehicle is totaled, the insurance company will pay you what the car is worth at the time of the loss. They have a variety of resources from which to pull this information (including calling local car dealerships), but the resource I have at my disposal (and also available to you) is Kelley Blue Book. Yes, the Blue Book has been around forever and is still the go-to resource for determing a car’s value.
Here’s my “Litmus Test” to decide when to switch to liability only auto insurance:
- Go to Kelley Blue Book Online at http://www.kbb.com. Choose “Car Values”, then “What’s My Current Car Worth?” from the drop-down. Follow the prompts to answer questions about your car, such as year, make, model, mileage, geographical location and condition. You’ll also choose whether you want the trade-in value, or the price if you plan to sell it outright. *Note- even if you want to believe your car is in Perfect shape, it’s not. Most cars fall into the “Good” category. Let’s face it, most cars have scrapes and dings. Go on now, I’ll wait for you……
- Take a long, hard look at the number you get. If you won’t cry bitter tears when the tow truck takes your car away, then you don’t need comprehensive and/or collision coverage.
- If losing out on that money would be a financial burden for you, then leave comprehensive and/or collision on.
Of course, there are some situations, like beginning teenage drivers, that you’re best to stick to an older car with liability only because the premium otherwise is just outrageous. If you’re in this boat, you can reference my earlier post concerning teenage Drivers called “Teenager driving soon? Save money with these little-known tips.”
I use this approach with many people. Because inevitably I get people who ask, “What should I do?” I can’t tell them what to do (although wouldn’t that a privilege sometimes?), but I can offer advice and resources to help them make the decision.