State laws usually require you to buy a basic level of auto insurance to drive, but some types of car insurance are optional. Collision coverage, which pays for damage your car suffers in accidents, and comprehensive coverage, which pays for damage due other events such as fires and storms, are both optional. Dropping optional coverage can lower your insurance rates, but it is risky, because you won’t be able to get any cash for repairs if you get into a crash. Whether it makes sense to drop coverage depends on a variety factors, including the value of your car and your stomach for risk.
The value of your car is the most important factor in determining whether you should consider dropping your collision and comprehensive coverage. If you drive a newer car that is still worth several thousand dollars, it’s probably a bad idea to drop your coverage. For instance, if you total a $20,000 car, you'll get a large insurance payout, so it is worth having coverage. Also, if you have a loan on the car, your lender will require you to carry collision and comprehensive. As your car gets older and its value falls, it becomes less risky to drop coverage. For example, if you drive a used vehicle that's only worth $1,000, it doesn't make a lot of sense to pay a few hundred dollars each year for optional coverage when it would only cost $1,000 to replace the car.
A deductible is an amount you have to pay before an insurance company will give you any cash for damage. For instance, if you have a $1,000 deductible and your car suffers $3,000 of damage, you pay the first $1,000 of the repair bill and the insurance company gives you $2,000 to pay the rest. If your deductible is almost as large as the value of the car itself, it probably makes sense to drop coverage. For example, there's not much benefit to have coverage with a $1,000 deductible on a car that's only worth $1,500, since you'd only get $500 from the insurance company if your car is totaled.
Buying a Replacement
When considering whether to drop collision or comprehensive insurance, you should think about whether you'd be able to buy a replacement with your personal savings. If you wouldn't be able to afford a replacement without the help of an insurance settlement, it is very risky to drop coverage, since you could left without a vehicle if you happen to get into an accident.
Dropping collision and comprehensive coverage is ultimately a personal decision that depends on the amount of risk you are willing to accept. If you are a safe driver, you drive infrequently or you have a high tolerance for risk, it might be worth it to you to drop coverage even if your car is still worth $5,000 or more. If you are not a great driver, you drive frequently or you don't have a stomach for risk, you should probably keep your coverage until your car is worth a couple thousand dollars or less.
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