Author Topic: Advice plz: How low to go in car insurance coverage?  (Read 4859 times)

onehappypanda

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Advice plz: How low to go in car insurance coverage?
« on: February 28, 2012, 10:08:49 PM »
So, the scenario:

I currently own a 2000 Civic, and right now I have insurance on it that costs roughly $70 a month (collision/comprehensive/etc, though a highish deductible). I just recently signed up for Progressive's weird program that tracks your driving habits and offers you up to a 30% discount, and I barely drive at all so I imagine that should lower my rate a good deal, maybe to $50 a month.

However, I'm debating lowering my insurance down to the state minimum, which I priced out and determined would save me at least $30-40 a month, if not a little more.

Here's the part that has me hesitant. I took out an unsecured loan to pay for the car when I originally purchased it, well before I learned about mustachianism or frugality or any of the other things that would have made me realize this was an INCREDIBLY stupid decision. I still owe about $2K on the loan, with a payment of $100 a month (at an interest rate I'm not even going to share because it's embarrassing). Ideally, if I lowered my insurance I could take that extra $40ish a month and throw it at the car loan, along with the $150 I've been throwing at it right now. That'd help me pay it off a little faster, which means less money wasted on interest. Since the loan is unsecured, I can still do that. But I'm hesitant, because if the car ever got totaled for some reason then I'd be up a creek without a paddle.

So, humor me, these are the two arguments in my head:
1) Since you still owe money, even if it's not technically *for* the car (unsecured), you should keep full insurance. If anything ever happened that destroyed the car, you could use the insurance money to pay off the loan. And if anything ever happened that prevented you from making the loan payments (not likely, but ya never know) you could sell the car to pay it off. Also, the car isn't so old that it's worthless, so it's risky to not carry any collision insurance on it.

2) Go to the bare minimum of insurance and use the extra money on the payment so you're not in debt longer than you need to be. Trying to cover a stupid financial decision by throwing more money at it is extra stupid.

Can someone just do me a solid and tell me which argument is correct?

Also, to head off what I know someone will inevitably say: No, I can't just go carless. While I'd absolutely love to, and I'm working on reducing my car driving to the minimum, I have some family/caretaker obligations and my family lives far enough away that I need a car. So I'd rather just pay this one off, use the experience to remind myself why debt sucks, and keep driving it for the next 15 years or until it takes its last breath.

velocistar237

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Re: Advice plz: How low to go in car insurance coverage?
« Reply #1 on: February 29, 2012, 06:24:23 AM »
If you're willing to not drive it until the loan is paid off, then go ahead and drop down to the lowest insurance all involved parties allow. Does your loan agreement require a certain level of insurance? Lenders often require collision coverage.

If you must drive it, I wouldn't skimp on liability coverage. Imagine getting hit by an unscrupulous lawyer.

Is there any chance you could set up an alternative driving arrangement? The odds of there being car sharing in your area seems pretty low, but if you had a friend who was willing, you could pay to get added to their insurance, and pay them car sharing rates for when you do drive.

onehappypanda

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Re: Advice plz: How low to go in car insurance coverage?
« Reply #2 on: February 29, 2012, 07:16:19 AM »
If you're willing to not drive it until the loan is paid off, then go ahead and drop down to the lowest insurance all involved parties allow. Does your loan agreement require a certain level of insurance? Lenders often require collision coverage.

If you must drive it, I wouldn't skimp on liability coverage. Imagine getting hit by an unscrupulous lawyer.

Is there any chance you could set up an alternative driving arrangement? The odds of there being car sharing in your area seems pretty low, but if you had a friend who was willing, you could pay to get added to their insurance, and pay them car sharing rates for when you do drive.

Thanks for the suggestion! Since the loan is a personal loan, it isn't actually attached to the car. That's why I could get away with having no collision coverage.

I couldn't get away with not driving it at all, sadly, but I can minimize the driving. The tricky part is that in my area I have to park it on the streets, and while I'm not in the roughest area, I'm also not in the best. Hit and runs, break-ins, and vandalism aren't unheard of here, so it's possible something could happen to it even if I barely drive it at all. That's one of the reasons I'm hesitant to get rid of collision coverage.

There isn't much of a car sharing system in my area. The only person I could possibly share with is SO, but his Civic has a lot more miles and may be on its way to the great junkyard in the sky fairly soon. I've tossed it around in my head and I can't think of any way to avoid owning a car given my situation.

Eristheunorganized

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Re: Advice plz: How low to go in car insurance coverage?
« Reply #3 on: February 29, 2012, 02:44:08 PM »
I personally went with the state minimum plus uninsured/underinsured motorist coverage on my last car. Some states require uninsured, mine didn't, but it was worth it for me.

Then again, my car was only worth about $2,500 kelly blue book. I suppose it depends on how much your car's worth and how ready you'd be to replace it if needed.   

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Re: Advice plz: How low to go in car insurance coverage?
« Reply #4 on: February 29, 2012, 03:30:52 PM »
This kind of reminds me of a mental exercise by Dan Ariely:

Lets say you buy a $20 theater ticket.  When you get to the door, you realize you dropped it somewhere.
If you want to see the show, you now have to buy a new ticket.
Most people will say "I'm not spending $40 on a $20 ticket" and just not go.

Lets say instead you plan to buy the ticket at the door. 
You arrive, open your wallet, and discovered you lost $20 somewhere.
Would you still buy the ticket?
Most people say "what does losing a $20 bill have to do with the ticket?"

But its really the same question both times.  Whether you lose one thing of value has no bearing on what else you choose to buy.

So, to relate this to the insurance:

Why does whether or not the car is paid for matter to whether you are comfortable not having full coverage?
I propose it is purely the psychological block against having to pay money on a loan with no object to show for it.

But if the loan was paid off, and you totaled the car with no insurance, you still are without a car. 
The real question is just: are you comfortable not having full coverage on your expensive investment.  Whether or not it is paid off should have no bearing on that decision.

And regardless of insurance, the best thing you can do is not get into any accidents.
Which is a lot easier than most people think.
Never ever ever drive above the speed limit, ever.
In fact, try to stay below it.
And double the following distance of whatever seems reasonable to you now.
Then you will never need to invoke your liability insurance.
If someone else hits you, their liability insurance pays for your car.
You can usually buy uninsured motorist w/o comprehensive, so you are covered in that case too.
Then the only real risk left is the car gets stolen, or a tree falls on it in a windstorm.
« Last Edit: February 29, 2012, 06:03:19 PM by Bakari »
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Re: Advice plz: How low to go in car insurance coverage?
« Reply #5 on: February 29, 2012, 03:50:52 PM »
I agree with Bakari - since you are not required by your lender to carry comprehensive, it really doesn't matter if you owe money or not. The real question is how effed would you be if your car was totaled. If you have no emergency savings with which to buy a new one (and you couldn't go without) you may feel better keeping it. Personally, our vehicle is worth about $4k and we carry liability only. However, we carry more than the state minimum of liability. I could afford to replace a $4k car, I can't afford to loose $40k if me or DH is at fault in an accident with a Porsche. If you have no assets that someone could sue you for, that might not be a concern just yet.

Eristheunorganized

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Re: Advice plz: How low to go in car insurance coverage?
« Reply #6 on: February 29, 2012, 04:58:05 PM »

And regardless of insurance, the best thing you can do is not get into any accidents.
Which is a lot easier than most people think.
Never ever ever drive above the speed limit, ever.
In fact, try to stay below it.
And double the following distance of whatever seems reasonable to you now.
Then you will never need to invoke your liability insurance.
If someone else hits you, their liability insurance pays for your car.
You can usually buy uninsured motorist w/o comprehensive, so you are covered in that case too.
Then the only real risk left is the car gets stolen, or a tree falls on it in a windstorm.

I agree. The only times I've needed my insurance were when someone hit my parked car. (I had full coverage). And when a crazy person got into a hit and run with me. (nice to have the underinsured instead of full coverage).

onehappypanda

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Re: Advice plz: How low to go in car insurance coverage?
« Reply #7 on: February 29, 2012, 08:42:00 PM »

And regardless of insurance, the best thing you can do is not get into any accidents.
Which is a lot easier than most people think.
Never ever ever drive above the speed limit, ever.
In fact, try to stay below it.
And double the following distance of whatever seems reasonable to you now.
Then you will never need to invoke your liability insurance.
If someone else hits you, their liability insurance pays for your car.
You can usually buy uninsured motorist w/o comprehensive, so you are covered in that case too.
Then the only real risk left is the car gets stolen, or a tree falls on it in a windstorm.

I agree. The only times I've needed my insurance were when someone hit my parked car. (I had full coverage). And when a crazy person got into a hit and run with me. (nice to have the underinsured instead of full coverage).

Sadly, the only time I've ever had an issue was a hit-and-run too. Someone nicked my car in the middle of the night and then smashed into the car that was parked in front of me before driving away. I woke up and went outside to find the damage and a police report card tucked into my window. Thankfully my damage was super minor (rearview mirror, easily replaced myself). But the other car was completely destroyed, and from what I heard the owner was basically screwed since he didn't have collision/comprehensive and there was no one to sue for damages. Otherwise I totally agree with you, most accidents you can attempt to prevent by driving extra carefully. I'd feel better about minimal insurance if I didn't have to park on the street, but after that experience I'm a little paranoid.

Thanks for all the good suggestions folks, I have some thing to think on.

Eristheunorganized

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Re: Advice plz: How low to go in car insurance coverage?
« Reply #8 on: March 01, 2012, 12:28:38 AM »
My underinsured coverage had a hit and run deductible. I had to fight with them, but I paid $300 for $3,000 worth of damage to my car.

foodguy

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Re: Advice plz: How low to go in car insurance coverage?
« Reply #9 on: March 01, 2012, 12:32:32 AM »
From a former auto insurance adjuster, so understand my qualifications and biases...

There are two insurance coverages at hand.  First, collision/comp is simply insurance for the car.  It is a pure gamble, as all insurance is.  For x dollars per month, you are betting that your car will be destroyed/harmed/damaged beyond your comfort level of paying for it.  Determine the value of your car via Kelly's Blue Book or the National Auto Dealers Association website.  Then subtract your deductible.  This is the amount you are insuring.  If you were to be in an accident, incident, hail storm, whatever, your collision or comprehensive would cover this amount.  I'm guessing the car is worth ~$4000-4500 dollars and assume a $500 deductible.  Is your monthly payment worth insuring $4000?  If you got into an accident and your car was toast, how would you be with a $4000 vs. without the check.  That the question to ask.

Now on to the liability portion of your policy, that is the bodily injury, property damage, etc. coverages.  If you are driving along and you hit a car full of people and it is your fault, this is the amount your policy will pay for the various coverages.  The property damage limit is the maximum amount that your policy will pay for property damage.  In Ohio the minimum amount of property damage coverage you are required to have is $7500 dollars.  If you hit a car that is worth $10,000, the extra $2500 is coming out of your pocket, as you are still liable for it.  If you hit a car worth $30000, you are on the hook for $22500.  From a bodily injury standpoint, this is normally expressed in two figures.  Ohio's limits are $12500 per person and $25000 per accident.  So if you hit a car full of people and are at fault, the maximum your policy will pay is $12500 per injured person, up to a maximum of $25000 per accident.  Again, any injury costs over those amounts become your personal responsibility.

In addition to these liability limits, you can obtain additional insurance policies called an umbrella policy that will cover beyond whatever liability limit you have selected or is required by the insurance company.  These policies can cover up to $1 million and more.

It is my opinion that to carry state minimum coverage would be absolutely ridiculous.  Should you get into an accident and cause serious damage or injury to another party, you will be in a world of financial hurt.  Much more hurt than than $40, $50, or $150 per month that you will save.  Remember, these are accidents and unforeseen events.  No one goes out of their driveway and intends to cause an accident with injuries and damage. It is the nightmare of some people that have been through such an event.  Think about the 1-800-SUE-EM advertisements you see all over for "Personal Injury Attorneys" and weigh the risk you are assuming by carrying state minimum coverage.  Should you hit someone and hurt or heaven forbid kill them, one of those attorneys will be coming after you.  Your $12500 limit will be eaten up within the first week.

I've been personally involved in accidents and liability claims with death, permanent disfigurement, and $100,000+ property damage.  Cars are lethal objects capable of causing a whole lot of damage.  Protect yourself appropriately.  If you want to drop the collision and comprehensive coverage and assume a bit of personal risk with your own property, that would seem reasonable.  From what I gather in the original post, it is an unsecured loan, meaning the car is not collateral for the loan.  If this is the case, you are only protecting ~$4000 worth of net worth after all.  If the car is collateral on the loan, the lender will most likely require you to keep this coverage, much like a mortgage lender requires you to keep homeowners insurance on your house.  With the liability coverage you are protecting your entire personal net worth as it stands now, plus the potential of future earnings garnishment, etc.

This should go to everyone to look at and understand their auto insurance policy.  "State minimum coverage" is hardly worth the paper that it is printed on in most cases.  It will not protect you should your liability be an amount over your policy limit.  YOU will be paying that difference.
« Last Edit: March 01, 2012, 12:34:56 AM by foodguy »

foodguy

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Re: Advice plz: How low to go in car insurance coverage?
« Reply #10 on: March 01, 2012, 12:38:19 AM »
And another point, if I'm driving around and you hit me with state minimum coverage, that is when my underinsured coverage kicks in.  You hit me and caused damage exceeding your limits.  My insurance policy now picks up the difference under the "underinsured" line of coverage.

Keep in mind, neither my insurance nor myself was liable for the accident.  So my insurance will attempt to seek reimbursement from you for the payment they made that their insured was not liable for.  Now you are going to have an insurance company coming after you.

lsl129

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Re: Advice plz: How low to go in car insurance coverage?
« Reply #11 on: May 16, 2012, 08:56:26 PM »
I would get quotes from several companies.  $70/mo for one driver and one older car seems excessive.  We pay about that much for 2 drivers and 2 cars. It might be your age, location, etc, that drives it up, but it's worth looking into.

You definitely don't want to skimp on liability.  I think $100/300k is typical, and I wouldn't go much less than that.  With a 12 year old car, I don't think you need collision or comprehensive, which could be 35-40% of your premium. The insurance company is likely to total your car with any significant amount of repair anyway.

gooki

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Re: Advice plz: How low to go in car insurance coverage?
« Reply #12 on: May 16, 2012, 10:16:31 PM »
It is my opinion that to carry state minimum coverage would be absolutely ridiculous.  Should you get into an accident and cause serious damage or injury to another party, you will be in a world of financial hurt.  Much more hurt than than $40, $50, or $150 per month that you will save.  Remember, these are accidents and unforeseen events.  No one goes out of their driveway and intends to cause an accident with injuries and damage. It is the nightmare of some people that have been through such an event.  Think about the 1-800-SUE-EM advertisements you see all over for "Personal Injury Attorneys" and weigh the risk you are assuming by carrying state minimum coverage.  Should you hit someone and hurt or heaven forbid kill them, one of those attorneys will be coming after you.  Your $12500 limit will be eaten up within the first week.

I've been personally involved in accidents and liability claims with death, permanent disfigurement, and $100,000+ property damage.  Cars are lethal objects capable of causing a whole lot of damage.  Protect yourself appropriately.  If you want to drop the collision and comprehensive coverage and assume a bit of personal risk with your own property, that would seem reasonable.  From what I gather in the original post, it is an unsecured loan, meaning the car is not collateral for the loan.  If this is the case, you are only protecting ~$4000 worth of net worth after all.  If the car is collateral on the loan, the lender will most likely require you to keep this coverage, much like a mortgage lender requires you to keep homeowners insurance on your house.  With the liability coverage you are protecting your entire personal net worth as it stands now, plus the potential of future earnings garnishment, etc.

Agreed.

keith

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Re: Advice plz: How low to go in car insurance coverage?
« Reply #13 on: May 27, 2012, 11:58:15 PM »
I don't really know what I'm doing when it comes to car insurance... but I have read through this thread and realized I need to make changes to my policy now that my car loan is paid off. Can someone confirm if the following sounds right?

Current policy details (Progressive):

-- Single, M, 27, Washington State
-- Car: 2008 Hyundai Accent

Quote from: Progressive
* BODILY INJURY & PROPERTY DAMAGE LIABILITY    [$320.00]
   BI $50,000 EACH PERSON - $100,000 EACH ACCIDENT
   PROPERTY DAMAGE LIABILITY - $50,000 EACH ACCIDENT
* COMPREHENSIVE ACV LESS $500 DEDUCTIBLE [$17.00]
* COLLISION ACV LESS $500 DEDUCTIBLE [$247.00]
* RENTAL REIMBURSEMENT [$12.00]
* UNDERINSURED MOTORIST [$14.00]
   $50,000 EACH PERSON - $100,000 EACH ACCIDENT
   UNDERINSURED MOTORIST PROPERTY DAMAGE -REJECTED
* ADDITIONAL PERSONAL INJURY PROTECTION [$50.00]

6-Month total: $660.00

1. Now that I no longer have a loan attached the car, I should get rid of Collision, right? My savings rate is high enough that should my car get totaled, I'm not concerned about cost to aquire a cheap vehicle again with cash. Thats mainly what I gathered from this thread...

2. What does "comprehensive" actually cover? and should I keep that because its so cheap?

3. Is "personal injury protection" for if I get injured in an accident? Do I even need this if I have excellent health insurance?

I.P. Daley

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Re: Advice plz: How low to go in car insurance coverage?
« Reply #14 on: May 28, 2012, 01:03:40 AM »
1. Now that I no longer have a loan attached the car, I should get rid of Collision, right? My savings rate is high enough that should my car get totaled, I'm not concerned about cost to aquire a cheap vehicle again with cash. Thats mainly what I gathered from this thread...

2. What does "comprehensive" actually cover? and should I keep that because its so cheap?

3. Is "personal injury protection" for if I get injured in an accident? Do I even need this if I have excellent health insurance?

1) Yes and no. Kinda depends on the value of the car and how much you're willing to self insure for repairs if it was hit by another car. One way to lower collision costs if you feel you should keep it a bit longer is to max out the deductible.

2) Theft, trees, animals, etc. Your call, and again depends on the value of the vehicle in general and to you and its necessity in your life and how much out of pocket you're willing to pay. http://www.carinsurance.com/kb/content25687.aspx

3) PIP pays out medical no matter who is driving the car and for all passengers in your vehicle, and pays out without fault determination. http://www.auto-insurance-claim-advice.com/personal-injury-protection.html

If you drop the collision coverage or significantly up the deductible, use some of that freed up money to at least double your liability and uninsured motorist coverage.
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Ipodius

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Re: Advice plz: How low to go in car insurance coverage?
« Reply #15 on: May 28, 2012, 08:06:34 AM »
One piece of advice - always ask your insurance company for a couple of different quotes, with different levels of deductible.

To my mind, 100% comprehensive insurance, but with a very high deductible, is the best of both worlds. I've got a $2000 deductible, but if I crash into a $200k Ferrari and there's a $200k medical claim, I'm covered.

Bakari

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Re: Advice plz: How low to go in car insurance coverage?
« Reply #16 on: May 28, 2012, 12:08:52 PM »
There may be states or companies that are an exception, but normally you have to get either comprehensive AND collision, or neither.  You can't just get comprehensive.
So drop both.  If you can replace the car with one or two years of insurance coverage, than unless you get into wrecks that require you to replace the car every one or two years, you can't possibly come out ahead!
The question isn't how much is your car worth, it is how much would it cost to replace.

Probably worth it to keep uninsured motorist.  That covers you if you get hit by someone else w/o insurance.  Otherwise their company would pay, and what coverage you have is irrelevant.  So with UM, all you need to do is be absolutely sure to never cause any wrecks (Step one, drive slower.  Step two, no cell phones, not even with handfree...)

I believe liability covers your passengers for bodily injury in an accident, but check with your insurer to be sure.  If so, then as long as you have good health insurance, it would be redundant.

Incidentally, with progressive you can see what affect every possible change to your policy would have online, without actually making the changes.  And, just in case it isn't obvious, pay in full upfront for an additional discount.
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keith

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Re: Advice plz: How low to go in car insurance coverage?
« Reply #17 on: May 28, 2012, 12:57:02 PM »
Cool, thanks for the tips everybody...

I am definitely going to up my liability, because it doesn't seem high enough now. Also going to look into the cost of high deductable collision to see if that is worth it vs dropping it. If the high deductable lowers the rate by a huge margin, I will probably keep it on there.

And, just in case it isn't obvious, pay in full upfront for an additional discount.

I'm not currently taking advantage this, but was one of the changes I was planning on doing as soon as I update the policy. Thats a nice discount...