If your car is worth less than about $4,000, drop collision coverage. Now.
I say this at least three times a week. Someone calls me, angry about their auto insurance premium. They’re driving a 2010 sedan with 180,000 miles. A dent in the door. A check engine light that’s been on for two years. They’re paying about $600 a year for collision and comprehensive coverage. Their car’s actual cash value? About about $1,500. They’re paying 40% of the car’s value every year in premiums. That’s insane.
I remember a guy named Pete. He drove a 2008 Honda Civic. Paid about $700 a year for full coverage. His car was worth maybe about $2,000. I asked him: “If you crash tomorrow, how much will insurance pay?” He said “whatever it costs to fix or replace.” I said “no. They’ll pay the actual cash value of the car minus your deductible. That’s about about $1,500 minus $500 deductible = about $1,000. You’ve paid about $700 a year for three years – about $2,100 – to maybe get about $1,000. That math doesn’t work.”
He dropped collision and comprehensive that afternoon. His premium dropped to about $350 a year. He saved about $350 annually. He put that money into a savings account for a future car. That’s the right move.
So let me walk you through exactly how to optimize your auto coverage based on your car’s real-world value.
First, find your car’s actual cash value. Not what you paid for it. Not what you think it’s worth. What a dealer or private party would pay for it today. Use Kelley Blue Book, NADA Guides, or even Craigslist listings for the same make, model, year, and mileage. Be honest. Your dented bumper and stained seats reduce the value.
Second, subtract your collision and comprehensive deductible. Collision pays for damage to your car from an accident, regardless of fault. Comprehensive pays for theft, fire, vandalism, animal strikes, hail, etc. The typical deductible is $500 or about $1,000. So if your car is worth $3,000, your maximum payout after a $500 deductible is $2,500.
Third, look at what you pay annually for collision and comprehensive. That’s a separate line item on your declarations page. For an older car, it might be $300-600 a year.
The rule of thumb: if the annual premium for collision/comprehensive is more than 10% of the car’s value, drop it. Or more simply: if your car’s worth less than about $4,000, drop it. You’re better off self-insuring – meaning you accept the risk of losing that car and use the saved premium to build a fund for your next car.
But there are exceptions. If you have a loan or lease, the lender will require collision and comprehensive. You have no choice until the loan is paid off. So focus on paying down the loan to get to the point where you can drop coverage.
If you own your car outright, run the numbers using the Auto Coverage Optimizer.
Someone I worked with – let’s call her Rachel – had a 2014 Ford Escape with 120,000 miles. Worth about about $6,000. She was paying about $520 a year for collision and comprehensive with a $500 deductible. The optimizer said: keep coverage, but raise deductible to about $1,000. Her premium dropped to about $360 a year – saving about $160. She put the about $160 into a dedicated “car repair” savings account. Now if she has a claim, she pays about $1,000 out of pocket, which she has.
The optimizer also checks whether you’re carrying coverage you don’t need. For older cars, things like rental reimbursement, roadside assistance, and towing can be cheaper through a membership like AAA. I’ve seen people pay about $50 a year for roadside assistance through their auto policy when they could get it for $20 through their phone carrier.
Now, what about liability coverage? That’s the part that pays for damage you cause to others. Never drop or reduce liability to save money. If you cause a serious accident, you could be sued for hundreds of thousands of dollars. Illinois minimum liability limits are laughably low – $25,000 per person, $50,000 per accident, $20,000 property damage. That’s not enough to cover a single ambulance ride and emergency room visit.
I recommend at least about $100,000/$300,000 for bodily injury, and about $100,000 for property damage. The cost to increase from state minimum to these limits is usually $50-100 a year. That’s cheap peace of mind.
Also, uninsured/underinsured motorist coverage is critical. About 14% of Illinois drivers have no insurance. If one of them hits you, your own uninsured motorist coverage pays your medical bills. Without it, you’re on your own. This coverage is also cheap – often under about $50 a year. Keep it.
I had a client – let’s call him Tom – who was hit by an uninsured driver on the Eisenhower Expressway. His car was totaled. He had collision, so that paid for the car. But he had about $15,000 in medical bills. He had uninsured motorist coverage, so his insurance paid the medical bills after a about $1,000 deductible. If he hadn’t had it, he would have been bankrupted.
Now, let’s talk about deductibles. Raising your deductible from $500 to about $1,000 can lower your premium by 10-20%. Raising to $2,500 can save 25-30%. But you must have that deductible amount in savings. Don’t raise your deductible if you can’t afford to pay it out of pocket after an accident.
The Coverage Gap Calculator can help you see if your auto liability limits are too low.
Here’s another pro tip: pay your premium in full, not monthly. Most carriers charge a about $5-10 installment fee per month. That adds up to about $60-120 a year. If you can afford to pay the annual premium upfront, you save that money. Use a credit card with rewards if you have one, then pay it off immediately.
Also, ask about low-mileage discounts. If you drive less than about 10,000 miles a year, you may qualify. Some carriers offer usage-based insurance where you plug in a device or use an app to track your driving. Good drivers can save about 20-30%. But be careful: if you’re a harsh braker or late-night driver, your rate could increase. Read the fine print.
I tried usage-based insurance myself for six months. I was a safe driver, but I drive at night sometimes. The app penalized me for driving after 10 PM. My rate went up 5%. I unplugged. Not for everyone.
So here’s your auto coverage optimization checklist.
First, determine your car’s actual cash value. If it’s under about $4,000, drop collision and comprehensive. Use the savings to build a car fund.
Second, if your car is worth about $4,000-10,000, consider raising deductibles to about about $1,000 or $2,500. Run the numbers in the optimizer.
Third, never reduce liability or uninsured motorist. Keep at least about $100k/$300k.
Fourth, drop add-ons like rental reimbursement if you have a second car or public transit options.
Fifth, pay annually, not monthly.
Sixth, shop around every two years. Loyalty doesn’t pay.
Pete – the guy with the 2008 Civic – he dropped collision two years ago. He put the $350 annual savings into a high-yield savings account. He now has about $2,100 in his car fund. His Civic finally died last month. He used the fund to put a down payment on a used 2020 Corolla. He paid cash for the rest. No car loan. He told me “that insurance money was working harder in my savings account than it ever was in my premium.”
That’s the goal. Insurance should protect you from catastrophe, not nick you for every small dent. Don’t insure things you can afford to replace.
P.S. Tom – the one who was hit by the uninsured driver – he recovered from his injuries. He still has uninsured motorist coverage. He said “I’ll never drive without it again.” Neither should you.
By Marcus Whitfield
