If your car is getting on in years, you may be paying more for car insurance than is necessary.
By dropping two optional and related types of coverage – collision and comprehensive – you can save hundreds of dollars in insurance costs over the last few remaining years of your car's life.
That's especially true with very old cars, where "what you pay in premiums may not add up to whatever you would likely collect if you file an insurance claim," says Carole Walker, executive director of the Rocky Mountain Insurance Information Association.
Collision insurance covers most types of damage to your car that are the result of smashing into something – a car, a light post, even the curb. It usually carries a deductible of between $250 and $1,000, according to the nonprofit Insurance Information Institute.
Comprehensive insurance generally covers all other damage to your car that does not fall under collision insurance. For this reason, comprehensive often is referred to as "other than collision."
Damage from wind, hail, fire and animals all falls under the comprehensive umbrella. This coverage protects you for mishaps ranging from a broken windshield to vandals covering your car in graffiti. Comprehensive typically has a deductible between $100 and $300, according to the Insurance Information Institute.
Should you do it?
Before dropping collision and comprehensive, give the decision some careful thought, says Jim Quade, director of field sales at Liberty Mutual.
Dropping collision and comprehensive is a mistake unless you "are comfortable absorbing the financial impact of repairing or replacing the car" after an accident, he says.
Even if you decide that it makes sense to drop the collision and comprehensive, you may not be able to do so if you have a car loan, says Sandra Spann, a spokeswoman for American Family Insurance. "Most lease companies and lienholders will require these coverages," she says.
On the other hand, Spann says, if your car is paid off and is so old that the value has hit rock bottom, you may find that "annual premiums to carry collision and comprehensive are too high compared to the potential benefits of having a claim covered."
How do you know when you've reached that point?
The Insurance Information Institute says you should consider dropping collision and comprehensive coverage when your car is worth less than 10 times the amount you spend on your premium.
Walker suggests looking at the cost of your annual collision and comprehensive premium. Then, compare that number to the value of your car, minus your deductible. If the first number is greater than the second number, she says, "that may be the deciding factor to drop them."
You may find that your car holds enough value to make dropping collision and comprehensive a tough decision. If so, ask yourself some questions: Do you live in an area prone to hail, or a rural area where collisions with wildlife often occur? Is your neighborhood a high-crime area where cars regularly are stolen?
If so, collision and comprehensive may offer more value to you than to drivers who don't live in areas where such risks are as great.
"Consider what comp and collision pays for and if you can afford to foot the bill before you drop (coverage)," Walker says.
The deductible alternative
If dropping coverage altogether seems too risky, consider raising your deductible instead. That way, you'll get some of the savings of dropping coverage without actually having to sacrifice the insurance protection.
"We are seeing a trend where more people are carrying a higher deductible for the short-term savings," Walker says.
Raising a deductible from $200 to $500 could drop your coverage costs by 15 percent to 30 percent, according to the Insurance Information Institute. Raising a $200 deductible to $1,000 could shave costs by more than 40 percent.
The bottom line is that dropping collision and comprehensive can be smart -- but only if the circumstances are right.
"Just make sure you put money aside so you don't find yourself without transportation if your car is totaled by Mother Nature or you (crash into) a tree," Walker says.