Do You Really Need Full Coverage? The Case for Dropping Comprehensive and Collision

Should I drop full coverage on my car?

If you've typed that into a search bar, you're probably staring at a premium that jumped 17.4% in 2023 alone (III). You're not alone in wondering if the extra coverage is worth it. We've been in the trenches, helping drivers decide, and we have a clear answer: for many, full coverage is a waste of money. Here's how we actually decide.

The math of full coverage: it's not about the premium, it's about the claim

Full coverage usually means liability plus comprehensive and collision. Collision pays for damage to your car in a crash, and comprehensive covers theft, fire, hail, and other non-collision events (Investopedia). About 80% of insured drivers carry comprehensive, and 76% carry collision (III). But that doesn't mean you should.

The key is to compare your annual premium for comp and collision against what you'd actually get back. In 2022, the average collision claim was $5,992, and the average comprehensive claim was $2,738 (III). Those are the payouts. Now, factor in your deductible. Typical deductibles are $500 or $1,000 (III). If your car is worth, say, $3,000, and you have a $1,000 deductible, the most you'd ever collect on a total loss is $2,000. If you're paying $800 a year for comp and collision, you're paying nearly half the car's value every three years.

When to drop comprehensive and collision: the 10x rule we use

Here's the rule we use in practice: if your annual comp and collision premium is more than 10% of your car's actual cash value, drop them. For example, a car worth $5,000 with a $700 annual premium for comp and collision is a bad deal. You're paying 14% of its value each year. Instead, bank that $700 and self-insure. If you crash, you're out $5,000, but you've saved thousands over the years.

Another consideration: your car's age and reliability. Once a car is more than 10 years old or has high mileage, its value drops fast. The average comprehensive claim is only $2,738 (III), and if your car's value is near that, the premium often isn't worth the potential payout.

But what if you can't afford to replace your car?

We hear the counterargument: "I can't afford a $5,000 loss." That's a valid fear, but it's not a reason to keep full coverage. If you can't afford to replace your car, you should be driving a cheaper car or saving that premium. Full coverage won't save you from financial ruin; it just caps your loss at your deductible. The real protection is liability insurance, which covers damage you cause to others. That's what can bankrupt you. In fact, liability coverage is required in virtually every state, and it's the coverage that protects your assets (III).

We're not saying drop liability. We're saying drop the coverage on a car that isn't worth much. If you have an emergency fund of even $2,000, you can cover a minor collision and still come out ahead versus paying premiums for years.

How to make the call: a simple comparison

Here's a table we use with clients to help them decide:

Notice the pattern: if the premium is more than 10% of the car's value, it's not worth it. That's a rule of thumb we've found works across the board.

The one thing to remember: higher deductibles can save you, but only if you're disciplined

If you're not ready to drop full coverage, at least raise your deductibles. A higher deductible lowers your premium (III). But don't do it without setting aside the difference. If you raise your deductible from $500 to $1,000, you should be saving that $500 somewhere. Otherwise, you're just gambling that you won't have a claim.

We recommend this: run the numbers on your own policy. Look at your declarations page. Find the comp and collision premiums. Divide by your car's value. If it's over 10%, drop them. If it's under, keep them, but consider raising the deductible to $1,000 or higher. And always keep liability coverage at or above state minimums—but that's a separate conversation.

The single most important thing to remember is this: auto insurance is for catastrophic losses, not for routine maintenance. If the premium is a significant fraction of your car's value, you're better off self-insuring and banking the savings.

Sources

• III - Auto Insurance Facts & Statistics - https://www.iii.org/fact-statistic/facts-statistics-auto-insurance
• III - How Much Auto Coverage - https://www.iii.org/article/how-much-auto-coverage-do-i-need
• Investopedia - https://www.investopedia.com/terms/i/insurance.asp