Liability vs. Full Coverage
Car insurance can be confusing. Should you have just liability or full coverage too?
Insurance is risk management. Buying individual stocks and even mutual funds have some amount of risk. It is the same with dropping collision and comprehensive insurance. You can save money, but you have to consider the risks at hand.
It is a no-brainer to drop full coverage when your deductible is larger than the worth of the car, ie you have a $1000 deductible and the car, if totaled would be worth only $900.
Next, look at payback. Divide the value of the car by the savings in insurance. Lower numbers mean you come out ahead faster if there were a claim that would total the car. You always come out ahead if you never make a claim since your rates increase.
It's all just risk management, and how much risk you are willing to assume?
You have to look at several things:
1. Are you in position to replace your vehicle if it is wrecked and is your fault?
2. What is the vehicle worth versus what it is costing you. Paying $140 a month is pretty steep and that is $1680 a year. If your vehicle is only worth $3000, it would take you less than 2 years without an accident to recoup the cost. If it is $10,000, it would take you 6 years.
3. How much of a decrease in cost would you get by upping your deductible to $1000. Do the cost analysis on that and see if it would be worth it.
4. It pays to shop around your insurance to another company. If anything, it will get your insurance to lower theirs if you have a quote from another company.
I look at this pretty simply. The insurance companies know the stats and they are charging in such a way that they are likely to make money on you. So the only insurance you should have is for things that you cannot come up with the money for.
If you had a $30,000 car, you could not afford to replace it, so you need full coverage. If you have a $2000 car, it would be a bummer to have replace it, but you could.
Labels: insurance, money saving tip
Posted By: Joe on Thursday, May 22, 2008
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