A few years ago Maya Sullivan was facing mounting piles of debt from her student loan, credit cards, and a lifestyle she couldn’t afford. After seeking credit counseling, she realized that she was paying more than necessary for things she actually needed, including a full coverage auto insurance in Attleboro, MA on her low-value, older car. Attleboro is a city in Bristol County, Massachusetts. It was formerly known as the “Jewelry Capital of the World” for its many jewelry makers.
Before delving into the factors that will determine whether you need full auto insurance or just the basics, it is important to first know the key difference between the two.
While “full coverage” is a loosely defined term, most industry experts agree that it typically combines three scopes of protection: state-required liability coverage, collision coverage, and comprehensive coverage.
- Most states have a minimum liability coverage requirement, which pays for property damages and bodily injury stemming from motor vehicle accidents in which you are found to be at fault. This is “basic” car insurance coverage.
- Collision coverage pays for damages to your car in the event of an accident whether or not you are at fault.
- Comprehensive coverage pays for the damages related to theft, vandalism, and other non-accident events.
On average, full coverage costs $110 – $140 per month, although it can vary greatly depending upon your location, type of vehicle, driving history, and ultimately your perceived risk factors.
Just like Maya, many people manage their car insurance in an auto-pilot mode. After all, her 10-year-old car could do without collision coverage, something that was a necessity years ago when it was still in pristine condition.
Aside from your car’s value and replacement cost, the other factors that will determine the ideal extent of your auto insurance coverage are first, the cost of the deductible, and second, the amount of money in your emergency funds (savings and other cash equivalents).
Before you drop collision coverage and other non-essential protection or switch to another insurance company, it is important that you get insurance quotes from different issuers so you can compare “apples to apples.”
Sullivan decided to drop her collision coverage, which lowered her monthly premium by almost half. This allowed her to save money on premiums, and apply that money to her emergency funds to cover any damages or repairs, or toward the new car she plans to purchase.
Nonetheless, she still has state-required liability coverage (it is illegal to drive without it), and even pays slightly higher than the minimum coverage requirement to make sure that she has ample financial protection in the event of an accident where she is found to be at fault.
Also, Maya kept her uninsured/underinsured motorist protection due to the increasing number of uninsured drivers on the road today. A recent nationwide survey showed that up to 13 percent of drivers are uninsured; in Massachusetts, that number hovers around 6 percent.
While technically you can drop full coverage if you’re driving a low-value, older car that is fully paid for, this is not something you should do lightly. For instance, if you have no emergency fund, you don’t have available cash for repairs, or your health insurance does not have extensive coverage, you can’t afford to take risks by opting for liability-only coverage.
To put this into perspective, Sullivan only dropped her full coverage after she had managed to save six months’ worth of emergency funds, and also found a job that had comprehensive health insurance coverage.
Sullivan tweaked her car insurance coverage based on the amount of risk she faced and what she could reasonably afford to cover in the event of an accident. Hence, she deliberately avoided cheap auto insurance, which generally comes with very little protection.