Collision and Comprehensive Auto insurance

[MrWednesday]

I just switched insurance companies (lowering my premium by 30 a month) but I could have lowered it another 15 by dropping comprehensive and collision. The (unreasonable?) fear of theft or accident kept me purchasing it. Ought I have gotten rid of it? I have a 2003 Subaru outback (about 5k value) and a 2007 Honda fit. No loans. I suppose I could always tap my mutual funds and buy a new used car if I needed to, but I'd really rather not. I'm having trouble getting past the "what if" scenarios and its "only $15 extra a month" Care to talk me around (or confirm?) my fears? Thanks!

[MissStache]

FUll disclosure: I work in the insurance industry and used to be a liablity adjuster, so the horror stories that I have heard weigh heavily on me.

I have a stellar driving history and a paid off 2007 Kia which isn't worth all that much, but I carry both comprehensive and collision.  My main reason for carrying comprehensive:  I live in a neighborhood with a lot of trees and I would be really pissed off if a tree fell on it and I was out $.  I also carry a really low deductible ($100) because I've had to have my windshield replaced a few times and it sucks to pay for that over and over.

Collision:  This is really important to me and kind of a soapbox.  There are two reasons to carry colision and file through your own coverages if you are NOT AT FAULT for an accident.
1.  The person who hit you had no insurance
2.  The person's insurance company does not accept fault.
In both of these cases, you can file through your own insurance company.  If the at fault party has no insurance, they will go after that person personally to recover your deductible and whatever they paid out on the claim.  Insurance companies DO NOT want to lose this money and they have huge departments who will go to great lenghts to recover that money.   If the at fault party does have insurance but they don't accept liability, your insurance company will go to arbitration on your behalf to prove their point (arbitration is a legally binding process that insurance companies use to mediate disputes.  They do not take place within the legal system- for speed and to keep costs down- but the companies must abide by decisions).  Companies have teams of specialized adjusters who go to arbitration to prove your case. 

If you do not have collision coverage and one of these two things happens, your are OUT OF LUCK.  Your insurance company is not legally allowed to take any of these steps unless they pay out on a claim.  You are screwed and they literally have no recourse and can do nothing to assist you. 

It is definitely more expensive, but I think it is absolutely worth it.  FWIW, I pay $350/year for full coverage on my vehicle with a $100 comprehensive deductible and a $250 collision deductible.  I also have very high liability limits (500/500/500).  So, it is still extremely affordable for me to carry those coverages.   If it was a lot more expensive, I probably wouldn't do it, but for $15 a month it seems worth it to me.

[AJDZee]

I did a similar thing last month... I got rid of comprehensive coverage. With increasing my deductible as well I reduced my premiums by $45 / month.

It wasn't until after I got off the call that I thought... 'oh shit... I wonder if I'm covered if my car is stolen?'

The lady I spoke with over the phone said 'comprehensive covers damage from fire, wind, theft, etc...'  which at the time I stupidly interpreted as 'the damaged from theft' (broken window, car stereo)

So now I'm saving $45/month but worried my car will be stolen. I have the money to buy a used car of course, and I've actually never heard of anyone getting their car stolen in Toronto, especially in the last 10 years.

But still, I'm also doing a risk/reward thing in my head now.

[seattlecyclone]

Read MMM's post about this topic. He basically says that insurance is worthwhile if you're either more risky than the insurance company thinks you are, or you truly can't afford a loss.

1) $15/month is $180/year. Do you think that the comprehensive and collision insurance will pay out more than that in an average year (after deductible)? This will show whether you're a bigger risk than the insurance company thinks you are.
2) Are your savings so small that a total loss on one of your cars would force you to borrow money to buy a replacement vehicle? This will show whether you can afford a loss.

If the answer to both of these questions is "no", you probably should cancel the insurance. Buy insurance for unlikely events that will truly ruin your finances, plan to use savings for the rest.

[MissStache]

Another thing comprehensive covers that most people don't realize is animal accidents.  If you hit a deer and you don't have comprehensive, you aren't covered.  Collision coverage doesn't cover any animal incidents.  Good to remember if you live in an area with a lot of deer!

[AJDZee]

It is definitely more expensive, but I think it is absolutely worth it.  FWIW, I pay $350/year for full coverage on my vehicle with a $100 comprehensive deductible and a $250 collision deductible.  I also have very high liability limits (500/500/500).  So, it is still extremely affordable for me to carry those coverages.   If it was a lot more expensive, I probably wouldn't do it, but for $15 a month it seems worth it to me.

Great post MissStache, thanks for the info!

To put things into relative terms, by the changes I mentioned above I went from $2,185/yr to $1,650/yr for car insurance here in Toronto.

For the record, I have a clean driving record - never been in an accident, no tickets, never had a claim and have been driving for 15 uninterrupted years...................................

If it was $350/yr I would be fully covered too, just like you have chosen.

[Spork]

Personal anecdotal evidence is worth squat... and yet... here I go giving it to you...

It has been > 20 years ... but I got bitten really hard by comprehensive coverage.  I had comprehensive/collision coverage on my vehicle as a young buck.  Back then I was on the parent's dime and they paid it.  I had a major accident and the car was 'totaled'.  By 'totaled' I mean: they evaluated my car at about 1/2 of it's worth, subtracted the deduction and gave me a check. 

Being young, stupid and emotionally attached to the car... I wanted to fix it.  I had to buy it back from them and pay out of pocket to repair it.  In reality ... it probably was totaled... but totaled at a much higher value.

My philosophy now (right or wrong) is to self insure.  Buy a car that you can afford to replace. 

[Nords]

I just switched insurance companies (lowering my premium by 30 a month) but I could have lowered it another 15 by dropping comprehensive and collision. The (unreasonable?) fear of theft or accident kept me purchasing it. Ought I have gotten rid of it? I have a 2003 Subaru outback (about 5k value) and a 2007 Honda fit.

At some point the extra $180/year is going to add up to more than the Subaru's declining value.  If the car is totaled, would you really get $5K from the insurance company?  Where do you decide that it's not worth the price?  12 years old?  14?  I've seen "thumbrules" advocating dropping that coverage when the annual premium is 10% of the car's value, but I don't know the basis for the thumbrule.

We have the assets to self-insure, so we drop collision & comprehensive when the vehicle is five years old.  We drive 'em with damage, too, as long as the engine and power train are still safe.  If you're not living in a risky neighborhood, and you're not a risky driver, and you're not driving 20,000 miles/year, then you can probably get away with that.

[Eric]

I dropped my collision and comprehensive earlier this year.  It's saving me about $300/year.  My car is worth about $6K.  I figure there's a very small chance that I'll get in an accident that's my fault, since I tend to drive like a grandpa in order to maximize my MPG.  I also don't drive all that many miles at the moment, so that's another factor lowering my risk of accident.  I also figure that since it's an ugly brown station wagon, the chances of it being stolen are pretty low.  I have no facts to back this part up though, it's just my general feeling.

[beltim]

I dropped my collision and comprehensive earlier this year.  It's saving me about $300/year.  My car is worth about $6K.  I figure there's a very small chance that I'll get in an accident that's my fault, since I tend to drive like a grandpa in order to maximize my MPG.  I also don't drive all that many miles at the moment, so that's another factor lowering my risk of accident.  I also figure that since it's an ugly brown station wagon, the chances of it being stolen are pretty low.  I have no facts to back this part up though, it's just my general feeling.

I don't have collision or comprehensive on my car either, but just because you're not at fault doesn't mean you'll get compensated for any damages.  See MissStache's two comments below for examples, and I'll chime in with two of my own: twice my car has been hit while parked on a street while I wasn't in the car, and no one left a note.  In one case someone actually got a license plate number, but the police weren't able to match it to the truck that matched the description of the one that hit my car.  In neither case was I able to recover any damages to my car.

That said, I've easily saved more money by not having collision or comprehensive coverage than my insurance would have paid out if my car were totaled the second time, so I'm quite happy with my decision.

[unpolloloco]

The real answer here is to run the math:
I assume the $15/month difference is to cover both cars.  But let's just go for the outback for purposes of simplicity  So...$180/year to cover $5K.  The insurance company is betting that you'll total the car once every 28 years.  Seems reasonable to keep paying the $180, but you might have other circumstances that would change that evaluation.

[lackofstache]

"Buy a car that you can afford to replace."

That's the key, if you've already purchased a car you can't afford to replace, then keep the coverage, probably with low deductibles as generally having the coverage is the expensive part, the price for lower deductibles on auto insurance isn't a huge increase, at least for the company I have & state where I live.

[jrhampt]

^^^I have a 2001 Toyota Echo that I purchased used several years ago for about $5k.  It came with a dent, and I have added some dents and scratches over the years, although it just recently passed 100k miles.  I am supremely unconcerned about it being stolen.  And I can afford to pay cash to replace it.  I don't wear jewelry so expensive that I worry about it being lost or stolen, and I would never drive a car worth enough that it would cause me to have those worries, either.  I just don't need the stress. 

I do think there's a case to be made for comprehensive if you have a newer car - my husband has a car that's only 3 years old, and we still carry comprehensive on that.