by: Aaron Whitaker
You have a car that you like and it’s paid off, so you’re enjoying not having a car payment. You were required to carry physical damage (comprehensive and collision) coverage by the bank before you paid of the loan, but how long should you carry those coverage’s now that it’s no longer required? I’m going to outline how to take a look at comparing the current value (actual cash value) of your vehicle to the cost of carrying comprehensive and collision coverage on said vehicle.
Actual Cash Value
The first part in considering dropping physical damage coverage is determining the ACV. What is actual cash value (ACV)? ACV tells you how a claim for the vehicle is going to be settled (in the event of a covered loss). What it tells you is that in the event of total loss (your vehicle is “totaled”), the most the insurance company will pay out is the value of the vehicle at the time of the loss (the ACV as determined by the insurance company).
It can be hard to separate what you think your vehicle is worth from what the insurance company would determine your vehicle to be worth. Sentimental attachment and what the vehicle cost you in the first place can drive up your own determination of what you could get for it if you were to sell the vehicle. Industry standard valuations (such as NADA, KBB, etc.) can help you get a better picture of what the insurance company is likely to value your vehicle at.
Comprehensive and Collision
The second part is taking a look at the cost of carrying physical damage coverage on the vehicle. (For a look at what comprehensive and collision cover, please click here.) Collision coverage tends to be responsible for a good chunk of the premium for an auto policy (at least here in Michigan). Comprehensive is not usually very expensive, and many insurance carriers require at least collision coverage on a vehicle in order to carry roadside assistance coverage.
I would recommend calling your agent to request a quote for changing your vehicle over to liability only (PLPD) or liability and comprehensive coverage. Once you know how much removing physical damage from the vehicle (be it both or just removing collision), you can then make an informed decision based on if the cost of insuring your vehicle for physical damage is worth the maximum amount you would get for the vehicle (ACV).
Making the decision to remove physical damage from any vehicle is a very personal decision. You can always ask you agent regarding their suggestions if you are unsure what to do. Only you should determine the estimated ACV of your vehicle, not your agent. They will be able to provide you with how much removing physical damage would save you per term (the length of your insurance policy).
Generally we start to look into this option when a vehicle is around 10 years old, but it varies greatly depending on what vehicle it is. Some cars keep their value better than others, and those that do might be worth keeping the physical damage on.
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About the author:
Aaron Whitaker joined Whitaker-LaChance in 2014 as a Personal Insurance Customer Service Representative. He brought with him extensive customer service experience from working in a retail professional camera store and computer electronic store for three years in Chicago. Aaron manages all personal insurance placement, marketing, account service and claim management. His expertise is in working with our clients to make sure their insurance program takes care of them through all the changes in life. Aaron is a graduate of Kalamazoo Home School Association and attended Columbia College in Chicago, where he studied Graphic Art Design. He is an avid photographer and enjoys fishing.