Do I need comprehensive insurance on an old car?

Comprehensive insurance financially protects you from the chaos life can wreak on your car. It covers non-accident damage from events outside of your control, from a fallen tree breaking your windshield to a nail puncturing your tire. Unlike liability insurance, which is mandatory in 48 U.S. states, comprehensive insurance is optional. Comprehensive insurance isn’t always worth it for an old car, unless the car is valuable. But you might not have a choice about whether you buy comprehensive coverage.

Do you need comprehensive insurance?

You don’t need a comprehensive insurance policy to legally drive your car. However, your lender might require comprehensive coverage (more on this below). Comprehensive car insurance kicks in when you file a claim for covered damage. Types of covered damage include:

• Weather and natural disaster damage. For example, dents from hail, water damage after flooding, or vehicle loss from a tornado.
• Vandalism and theft. This includes things like rowdy teens hitting your side mirror with a baseball bat or a burglar stealing your stereo.
• Damage from wildlife. A broken windshield from colliding with a deer or damage from an intruding bear falls into this category.

Comprehensive coverage pays for repairs and replacement for covered damage after subtracting the deductible. The coverage will only pay for repairs/replacement up to the current market value of your car. If you have a car that’s valuable because it’s new (or a classic), comprehensive insurance is a justifiable investment. The cost of your premium and deductible will probably be lower than the cost to repair or replace your car. But the older your car gets and the more it depreciates, the less cost-effective comprehensive insurance becomes.

Is comprehensive insurance worth it for an old car?

Insurance companies use “actual cash value” (ACV) to decide how much to pay for comprehensive car insurance claims. ACV approximates how much a buyer would pay for your specific car in its current state – at its current mileage, with all its dents, scratches and preexisting mechanical problems. That’s why your car’s ACV is often less than its Kelley Blue Book value.

With an older, lower-value car, the annual premiums for comprehensive coverage can add up to more than the ACV less the deductible! In that case, it’s a better financial decision to forego comprehensive coverage. Saving the money you would have spent on the premium will leave you with cash at hand for surprise car repairs.

What if my lender or leasing agent requires full coverage car insurance?

You might decide you don’t need comprehensive insurance, but sometimes you’re not in charge of that decision. If you lease or finance your car, your contract or lease agreement might require full coverage insurance. “Full coverage” isn’t a type of insurance coverage. It’s a bundle of several types of coverage that, together, apply to most situations your car could encounter. A full coverage policy includes comprehensive and collision insurance in addition to state-mandated liability insurance. Lenders and leasing agents want you to have full coverage because it protects their financial interest in your car.

So, if you lease or owe debt on your car, you will almost certainly need comprehensive coverage. The good news is, if you finance an older car, you can probably pay it off faster than if you finance a shiny new Tesla. The sooner you own your car outright, the sooner you can choose whether you want comprehensive insurance.

Choosing a comprehensive coverage deductible

Whether you’re voluntarily buying comprehensive insurance or doing it because your lender requires it, you do get to choose your comprehensive coverage deductible.

The deductible is how much you must pay for a car repair or replacement out of pocket before your policy starts to cover the cost. There’s an enormous range of deductibles, from $0 to thousands of dollars. If you have a $1,000 deductible and total your car with an ACV of $5,000, your insurer will reimburse you $4,000.

It can be tempting to pick the lowest possible deductible, but the lower your deductible is, the higher your premiums will be. You can determine the best deductible and premium for you by balancing the number of comprehensive insurance claims you’re likely to file with the premium you can afford. Don’t forget that filing a claim can make your insurer raise your premium, especially if the claim costs them more than $1,000.

How do I know if my car should have comprehensive insurance?

Compare the value of your car to the amount you’ll pay in comprehensive coverage premiums over the time you plan to keep the car. If the cost of comprehensively insuring the car is higher than the amount your policy would pay out if the car was totaled, you might be better off saving your money instead of getting comprehensive coverage. Your choice depends on your finances, your car’s age and condition, and the likelihood that it could get damaged. Of course, you might not have a choice. You might have to get comprehensive and collision coverage if you leased your car or took out a loan to buy it.

If you’re shopping for comprehensive coverage and want to make sure you pick the best policy for your needs and car, reach out to Surround Insurance. We’ll make it simple.