Is It Worth Canceling Collision and Comprehensive Coverage?
Just about 2 years ago my wife and I decided to get rid of both the collision and comprehensive coverage on our cars. We still had car insurance (including the max amount of liability coverage), we just stopped paying for those particular parts of the coverage.
Which might be surprising if you’ve spent any time here, given how much I love insurance and how much of it I have.
But as strongly as I feel that having the right insurance is essential for any young family, I feel just as strongly that insurance can be a waste of money when it’s not used correctly. That’s one of the reasons why I think whole life insurance is a bad idea for most people.
So today I’d like to explain our thought process for doing away with collision and comprehensive coverage, and evaluate whether that decision has held up as a good one after two years.
First, what is collision and comprehensive coverage?
If you take a look at your car insurance policy, it will look something like this:
It’s basically a list of different type of coverages, each of which has its own cost. It’s really more like a bundle of insurance products rather than one single product.
In that list, collision and comprehensive coverage are two of the items.
Collision basically covers any damage that happens to your car while you’re driving it. Any typical accident would fall under your collision coverage.
Comprehensive basically covers any damage that happens while you’re not driving you car. It also covers all glass damage and any damage resulting from hitting an animal (even if it’s while you’re driving).
The logic behind both is that your car has value that you want to protect.
Why did we get rid of them?
We had two cars at the time: my 1998 Honda Civic and my wife’s 2004 Scion XA.
We had used Kelly Blue Book to estimate the value of my car at about $2,000 and my wife’s car at about $3,500. We also had a $1,000 deductible for each, meaning that we’d pay up to $1,000 worth of damages before the insurance company chipped in. So what that meant was that even if both cars were totaled, the maximum value we would get out of our collision and comprehensive coverage was $3,500.
Meanwhile, we were paying a combined $449 per year for collision and $381 per year for comprehensive. A total of $830 per year for the two cars.
So our thought process essentially looked like this:
- At $830 per year, in just over 4 years we would pay more in premiums than the maximum value we could ever recover from that coverage. And those premium payments were guaranteed, even if neither of our cars were ever damaged in any way.
- Most accidents would fall under the $1,000 deductible. We would have to face significant damage before the coverage even kicked in. We could lower the deductible, but that would simply raise the premium.
- If we canceled coverage, the absolute worst case scenario was both cars immediately being totaled, costing us $3,500. But if that had happened, we had the savings that could have handled it.
Because our cars were older and therefore not worth much, and because we had the savings to handle the worst case scenario, we chose to give ourselves the probability of saving money by not paying for the insurance. The risk of going without coverage was small and the potential savings was several thousand dollars. It actually ended up being a pretty easy decision.
(Full disclosure: we’ve since bought a 2007 Honda Odyssey, conservatively worth about $11,000. Because it’s worth more, we’ve decided that the coverage makes sense for now on that car. We still don’t have it on the Scion though. Basically, it comes down to the value of the car vs. the cost of the premiums.)
And then we had a claim!
A couple of weeks ago we woke up to the fact that someone had smashed in one of the Scion’s windows. Thankfully they hadn’t stolen anything of value, but still we had to replace the window.
That’s typically something that would be handled under comprehensive coverage. But we didn’t have comprehensive coverage. Which meant we had to pay $220 out of pocket to get the window fixed.
Which at first was frustrating. I found myself annoyed that I had to shell out the cash for something I could have had covered by insurance.
And then I thought about it a little more and realized that:
- $220 was less than the $1,000 deductible, so I would have had to pay it anyways.
- In any case, after two years we’ve saved well over $1,000 in premiums. Even with the $220 to replace the window we’re pretty far ahead.
Insurance is for the big risks, not the little ones
When I stepped back from the immediate emotional reaction, this incident actually served to hammer home an important point about insurance. Insurance is meant to protect us from the big, potentially devastating losses. It’s generally not cost effective to use insurance for small risks, like replacing a $220 window.
This is exactly why I love things like life insurance and disability insurance. Death and disability may be unlikely, but the financial loss would be huge in either case.
It’s also why I would choose a lower premium, higher deductible health insurance plan over one with a higher premium but no deductible. The high deductible lets us handle the small risks in a cost effective manner while still protecting us from the big losses.
In the end, nothing is guaranteed. My wife’s car could be totaled today, and if it was we’d end up losing money on the decision. But we have the savings to handle it, so it would be more of an inconvenience than a catastrophe. And the odds are that we’ll save money going this route, so all told I still feel good about the decision.
What about you? Do you have collision and comprehensive on your car? What are your thoughts on insuring big risks vs. small ones?
I *think* I have collission and comprehensive coverage. This is one sign I need to review my auto insurance policy 😉 This is a really good statement, though, “Insurance is for the big risks, not the little ones.” So many times people think insurance should pay for every single dollar they owe for medical care, auto issues, etc. In reality it’s a tool to protect you from big financial risk.
Well said. I always think it’s interesting when people are hesitant to buy things like life or disability insurance but scoff when their health insurance doesn’t cover the full cost of a routine visit. Those small, expected expenses are things that should be planned for, not insured. It’s the big, catastrophic losses where insurance is really valuable.
This is an interesting take and something that I’ll have to look into with our cars. It might make sense with my wife’s 2006 corolla.
I’ll be interested to hear what you guys decide.
I don’t have either on my car for the same reason-it’s older and doesn’t hold as much value. In a very worst case scenario, I could afford to replace it. Sorry to hear someone smashed the windows of your wife’s car, though, that’s a little scary!
Yeah, it was a little scary. They actually got a whole row of cars on the street and somebody speculated that maybe it was the local glass shop, since they didn’t steal anything from anyone. But in any case, it does make you feel a little less secure.
I think you’re spot on here Matt. We take the same approach with out cars. Our older one is a 10 year old car has a value of about $3500 and rarely gets driven, so we have what we need on it but only the basic. Our newer car is about triple that and is our family car, so we have comprehensive and collision. I believe it’s easy to get in to that trap of thinking you’re “covered” if something happens, but I’d much rather shell out only $200 or so if something were to happen than to spend much more over the remaining life and have no need for it.
It’s a little bit of a weird mental trick. I think it’s a little easier to pay the premium, even if it’s more, because you can set it on autopilot and kind of just forget about it. But that $200 charge stares you right in the face in a moment where you’re already upset. But if you can get past that, sometimes doing without the coverage is the best move.
We cancelled collision on my minivan. It’s older and paid-off so we just decided that it wasn’t worth it anymore. I also only drive it maybe 2-3 days a week. The savings was big enough to make it a no-brainer.
Sounds like you were pretty much in the same boat as us.
I have collision and comprehensive since I bought a newer car back in 2010. At some point when I’ll probably drop that coverage. Just have to figure out at what point it’s not worth it to pay the higher premium. I’m not a big fan of paying for insurance for little things where I can self-insure. My co-worker always talks about how it’s important to get insurance on her cell phone. I see those types of insurances as those extended warranties (which they also get). I don’t see much value in that.
Oh man, I was actually interviewed by a reporter a few weeks ago on the subject of cellphone insurance and I think she was a little shocked by my complete and utter rejection of its existence. Such a useless product.
I’m with DC, love this “Insurance is for the big risks, not the little ones”. 🙂 I do have collusion and comprehensive but only because I’m driving a newer vehicle where it makes sense. Car insurance is one of things we tend to forget about after we buy it. But our cars do age and at some point we need to consider whether we need as much coverage. Like you said, even if you had the coverage, you still would have had to paid for the window repair. It’s a good reminder to take a look at your car insurance policy. Some people are probably paying too much when they consider their deductible, car value and hopefully, emergency fund!
We have it for our newer car as well because the cost of the insurance is such a smaller percentage of the value. But for a lower value car? Like you say, that’s one of the things an emergency fund can be there fore.
We have both, mainly because our cars are still worth a good amount. However, when we had our $500 car, we only had liability.
Sounds pretty much like how we thought about it.
I was shocked enough at your costs that I had to go look up what we are paying for collision and comp… It’s $9/month for collision and comp on both cars (~$18K if value) with a $500 deductible. No brainer for us to keep it IMHO, but I can see why you would cancel the coverage.
$9? That’s crazy! I guess this is one of the big downsides of living in Boston.
Sorry, typo! $19/month. $111 every 6 months. But still a no brainer I think for us considering the value of what it’s covering. Oddly moving to a $1000 deductible would have only saved us ~$5 per month, which for us puts the break even point of that higher deductible way too far away considering how some folks around here drive.
Well even at $19 per month, that’s still WAY lower than ours. Maybe I’ll have to shop around for insurance again. And I would have kept the lower deductible at that rate too.
Ours is fairly low also. Comprehensive is $27.11 (semi-annually) for one vehicle, and $23.92 for the other.
Thanks for this post! I have been thinking of canceling collision and comprehensive coverage on our car since the value is quite low and we have more savings in comparison with when we last changed our insurance, but I haven’t looked into the numbers yet. I will now!
I had two friends get into solo accidents within 2 weeks of one another and they had both canceled their collision coverage as soon as they paid off their car loans. The cars were still quite valuable and they did NOT have the savings to repair the cars. It was a real eye-opener for me because like you I like to have generous insurance coverage. I’d say if you’re not going to crunch the numbers and evaluate your available cash for repairs, it’s better to default to having the insurance!
Having the cash available to handle replacing the car without sacrificing other big goals was definitely a part of the decision. If we couldn’t have handled the cars being totaled, but could handle the premium, then we probably would have kept it.
I’d love to hear what you guys decide once you run the numbers.
I think that’s generally the smart move. And like you said, insurance is for the big things. I basically think of all the insurance we own as keep-us-from-going-broke insurance. Health insurance keeps us from declaring bankruptcy if we get really, really sick. Disability insurance keeps us from going to the soup kitchen if I lose an arm and can’t type on a computer anymore. Stuff like that. Wrecking my car? No, that will not make us go broke.
That said, we still do have collision and comprehensive on the Toyota because, well, I don’t know why. I guess I like that when we rent a car, we have peace of mind that this fancy, expensive car has full coverage. I’m not sure if that’s enough reason to keep it, but buying the insurance on a rental car (say, once a year) is pretty pricey.
“keep-us-from-going-broke insurance”. I like that a lot. As for the rental car, do you have a credit card that provides coverage for that? I think all of mine do.
Makes a lot of sense to me! We have a ’06 Civic that’s worth about $7k and our second compact SUV is about $15k. For the Civic I recently decided to raise the collision and comprehensive deductive to the maximum of $2k to save a good amount on the premiums. On the SUV we also raised the collision and comprehensive to $1k. I figured we’d be willing to take on additional risk via a higher deductible, but if anything does happen, paying $2k for $7k benefit or $1k for $15k benefit is still great.
Nice! Our deductibles were always at $1k, and still are for the newer Odyssey we have. I’m not actually sure if we can raise them higher than that, or if it would be worth doing so. Something to look into though for sure.
Makes perfect sense. We just picked up a newer car so we will be opting for the comp/collision for now but as it gets older dropping the coverage will need to be revisited. Also I agree that insurance is for the big things in life, which led to me and the Mrs. getting life insurance policies recently.
Nice work on the life insurance! From my point of view that’s one of the most important things for a parent to handle.
Even though our truck is older (2006), it still has a pretty high value, so that one has full coverage. My car is probably borderline. I believe it’s worth about $7000, so I think until if falls below $5000, we’ll keep full coverage on it. I would almost never file a claim unless it was for something huge. Filing claims just makes the premiums go up more.
I’m very far from an expert on this, but doesn’t it depend on what the claim is for? Does it go up if it’s for something that wasn’t your fault? I’m honestly not sure how that works, or even if it’s the same with every insurer.
We only pay about half of that amount for two vehicles, so I think the coverage may still be “worth” it for us. Good exercise & tips for evaluating cost-benefit, though. This could apply to really any decision, not just insurance.
I think you’re spot-on that this kind of exercise could be applied to just about any decision. And yes, your costs are extremely low! Hard to imagine it not being worth it in that case.
Everything was making sense til you got to the claim experience piece — almost all glass coverages have no deductible (for there’s very little glass in a vehicle that reaches deductible levels, and hence the coverage would be meaningless without the policies waiving the deductible). Just a minor point — otherwise you seem spot on in your logic.
I have to admit that I don’t remember the exact specifics of that phone call anymore, but I’m looking through my current policy and the language says “We will pay under Other Than Colision Coverage for the cost of repairing or replacing the damaged windshield on our covered auto or any non-owned auto without a deductible.” It very specifically says “windshield”, and since this specific claim was for one of the side windows I wonder if that was the difference. In any case, it’s certainly possible that I was mistaken on this point but I believe I asked at the time whether I would have had to pay the deductible and was told that I would. Thanks for the input!
Okay here’s my issue..I have a 2006 Mazda 3 manu which has 47000 miles on it currently(yes this is very true). I am slowly trimming my finances and this right here is a tough one. I don’t drive it as much (2 times a week) only of course long distance, which 2 times every month.
My quesion is should I cancel both collision and comprehensive or just one? I was thinking of cancelling the collision since it sits in the parking lot majority of the time. Please help me
Hey Kunal. Great question! So here’s how I would think about it.
1. What’s the current value of your car? You can look this up on Kelly Blue Book. This will give you a rough idea of the max amount of money you might get from your insurance company if your car was totaled.
2. How many years of premium payments would it take before you had paid more than that amount into your policy? The smaller the number, the less valuable the coverage is.
3. Do you have the savings in place to handle a car replacement without the insurance coverage, and without handicapping your financial situation? If so, then the coverage is less valuable. If not, then it may still be valuable.
The big question is this: by cancelling coverage, would you be opening yourself up to a potential loss that would be difficult for you to handle? That’s the real point of any insurance, so if the answer is yes, then it’s probably worth keeping. If the answer is no, then it may be worth cancelling.
I finally stopped our collision and comprehensive insurance. Our vehicle is worth about @2,000. Our deductible was only $200. A week after I did this I banged up the bumper. One estimate was about $600…yikes. Luckily my hubby found a bumper from a salvage place and someone will install it for $100. So total about $225. If it had been more, than I would have been very upset. We only paid about $300 a year for that part of the insurance.. Wondering if I did the right thing? We have some money in savings, but not lots…..
The main purpose of insurance is to protect you against big losses you can’t afford. One of the nice things about having money in savings vs. putting it towards car insurance is that your savings could be used for anything, while your car insurance can only be used for your car. So for a cheaper car like yours, I would generally lean towards building up your savings over buying insurance. BUT if it would cause big problems for you if your car was totaled tomorrow, maybe the insurance is worth it.
I like to keep comprehensive longer than collision. Comprehensive alone is not nearly as expensive for the coverage as collision. A windshield crack is a very likely thing around here, as is getting hit by a deer. Plus, a claim against comprehensive does not have as negative impact on your insurability that a claim against collision. It only takes about a $1500 at-fault collision payout in my state before red flags start to go up.
I’m confused. My husband and I have been driving our paid off cars for over 8 years now (both hand me downs from my parent’s), and now in our early 30’s the repairs are getting pricey for my car and are thinking about a newer vehicle for me. Long story short, we dropped collision and comprehensive coverage years ago believing it to be much cheaper, but now we find out that it’s less than $20 a month total to have both collision and comprehensive on each vehicle with a $500 deductible.
Why do people believe that anything more than liability is so expensive? That was our belief and here we find out that is not the case at all. For a bit less than $20 a month total, it’s kinda silly for us to not have that coverage. Not sure what we were thinking when we dropped it years ago but we will be adding it back soon. Sure the value of our cars are only around $5,000 each, but for a few hundred a year we can have more piece of mind with better coverage.
I don’t think there’s one right answer here Dee. It really depends on the specifics of the situation. In your case your cars are more valuable than ours were at the time, your premiums are lower, and so is your deductible. So having the coverage certainly makes more sense for you than it did for us at the time.
Great article and right to the point. Why would you insure a small risk? Any card player knows that intuitively. Well put that it’s cost of insurance vs. the relative risk. Like every judgment in life, if you understand risk management you’re good to go.
I’m shocked at how much you paid for Comp/Collision. On our 2012 Grand Caravan, it’s only $444/yr, and that’s for expensive Louisiana.
What hits us really hard is 100/300/100 BI/PD: $1,160/yr for the minivan, and $1,685 for a 2010 Camry. No way we can drop it, though, in this litigious area.
Well, we were paying $830 per year total for two cars, which is less than double what you’re paying for one car. And at the time I wrote this we were living in Boston, which is a crowded city with a high probability of making a claim.
Good point. I missed that it was for 2 cars.