Why I Don’t Carry Collision and Comprehensive Auto Insurance Coverage
CK asked me, in my post about requesting auto and homeowner’s insurance quotes, what my logic was in not getting collision and comprehensive coverage and so I’ll share it with you all. First though, I want to admit that it’s a risky decision and that it’s not for everyone. I have a relatively new car that still has a higher percentage of value, compared to its saleable value, and so it’s very risky. Let me explain why I did it, plus a little background.
I purchased my first car, a 2000 Acura Integra, about three years ago for approximately $14,000 on eBay. In quoting car insurance I found that it would’ve cost me approximately ~$1500 per year to insure the vehicle (I was 23, single, and in a sporty car) with comprehensive and collision coverage ($1000 deductibles). By removing collision and comprehensive, that price fell to a mere $700 a year. (This is all based on memory, I don’t have my records anymore), a difference of $800 a year. Two years later the car was totaled when a woman in a Dodge Durango ran a red light and t-boned my car. So, if you were to reset the clock, I saved approximately $2,000 in insurance payments. So, in this case, the risk was “worth it” but that may not always be the case.
So why did I self insure instead of getting comprehensive and collision insurance?
- By not living in the city, I felt the chances of a theft were smaller. Comprehensive insurance is what would be used in the event your car is stolen. It’s also what would be used in the event someone broke into your car, though your renters or homeowners would protect your possessions in the vehicle.
- A deductible of $1,000 is pretty high, you pretty much don’t claim anything unless it’s catastrophic, which is the purpose of most insurance anyway. So if I had $1,000 worth of damage to the car, I would still basically have no coverage.
- I saw myself as a pretty safe driver, I don’t take risks, I don’t do anything stupid. Stupid young drivers are the reason why you get shafted on rates if you’re a guy and under 25 years old.
My current vehicle, a yellow Toyota Celica, is insured the same way. I purchased it with the insurance money from my last car, courtesy of USAA (of which I can say only good things about), and I’m saving a little more (about a thousand a year) to self-insure. Saving a thousand dollars a year, especially when the protection wouldn’t even kick in until damage exceeds $1000 (and even then only the excess is covered), is a significant cost savings and I’m willing to take that on a car that I bought for about $16,000.
Any thoughts? CK, you better answer and give me a stern talking to for self-insuring. 
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There are 31 comments, add your thoughts now!
Jim-To help with my reply can you break down your savings into collision and comp.
Wow that was a fast response… I only ever calculated the payment with both collision and comp or both removed. You can’t get collision without comprehension. So… I’m afraid I can’t break it down into both.
you only need collision if you are at fault. if you are in an accident and it’s the
other guys’s fault then his insurance company will pay for the damge.
but, it gets tricky if the other person is unisured.
slow day at work;-)
sadhu-
it depends on your states insurance laws.
CK, Sadhu - That’s very true, in some states (like Pennsylvania) it is no fault… so the liability is split 50-50 regardless of who caused the accident. Personally I think that’s unfair but what can you do?
[...] Elsewhere in the blogosphere, Chitown from Windy City Blues was also in a car accident recently, and Jim from Blueprint for Financial Prosperity doesn’t carry collision and comprehensive insurance. [...]
Two quick things. First, I use USAA for all my stuff and I can’t say enough good things about them. I love them. Second, after my wife’s car was recently totaled in an accident she didn’t cause, I was very dismayed at both ‘the system’ and how much she was reimbursed for her car. I dropped collision on my (older, crappier) car the next week.
actually, with no fault insurance, there is still fault involved. I was in Central NY in college and someone T-boned my Isuzu rodeo and totalled my car, the insurance company still had to pay for my damages. NY is a no fault state, but circumstances dictate which insurance company pays. This always comes down to peace of mind.
I work for an insurance company in Tx and I have to agree that collision and comp are not necessary once you reach a certain age on your vehicle. It’s good to at least look at the NASD or Blue Book values to get an idea of what the vehicle is now worth because that is the most you can expect the insurance company to pay. In TX at least, you can split collision and comp and only carry one. We have so many hail storms in the spring that a lot of people keep comp on their vehicles. Also, if you do decide to go liability only, at least look into carrying uninsured/underinsured motorist coverage. That way you are still covered if hit by someone with no insurance - which is more than you would like to think! Just a few thoughts!
you’re one brave guy, Jim! but i have to agree that it’s very logical and money-wise. do you think the deprciation on new car is not worthwhile?
Perry - In PA, I was told it’s a no fault state and everytime anyone I know has had an accident the cost has been split by both companies with no one recorded as “at fault.” It may be different in other “no fault” states… I wouldn’t know. And it does come down to peace of mind and i figure i can take not paying $1k a year not to have it. If my car were more valuable, it would be a different story.
Jen - it’s three years old and i bought it a year ago for $16k, if i can save $1k per year then the numbers, CK ran the numbers, say that if i can remain accident free where I am at fault (accident where my car is totalled) for 7 years then I am home free.
Please use caution while choosing to drop collision and comprehensive coverage. It sounds like you know what your are doing and know the risk involved but it is estimated that 1 out of every 4 full coverage insurance drivers has to make a claim at least once every 3 years. In my view if you have to make a claim it would pay for the amount you saved in most cases. In these days a headlight alone can cost $400 or more. If 16,000 is not a lot of money to you it may be a good deal, but it sure would be nice to have the value of your car replaced in the unlikely event you total your car or damage it beyond repair. If that would happen then you probably would have wished you spent the extra money to insure your car. Most finance companies require you to carry collision and comprehensive coverage to insure them the cost of the vehicle and to protect their investment.
PA does seem to have very strange laws, if you got money to replace your car despite not having C&C coverage. ‘Round here, unless you pay for C&C, the only thing insurance will cover is your liability if you damage another person’s (non-motorized) property and/or cause them injuries. (In other words, if you run over a pedestrian, your insurance will pay when he sues you. If you drive into a stranger’s living room, your insurance will pay when they sue you. For that matter, if you hit a parked car, your insurance will pay when the owner sues you. But no matter what the circumstances of the accident, you’re on your own to replace your car if it’s totalled, unless you’re carrying C&C.)
Which is why you can’t finance a car without agreeing to carry C&C at all times.
I live in PA and don’t carry C&C on one of my cars. I own it outright, it’s pleasure car (that means it sits in the garage 99% of the time) and it’s worth maybe 8-9 thousand.
As for the “no fault” thing. I think people may not understand how it works. Just last year I was rear ended and my truck was totaled I did not have C&C on it and was reimbursed for the value from his insurance company. Had I signed up for C&C, I would have been able to make a claim against my insurance and then they would have gone after his insurance company.
I don’t understand how this stuff works. If you didn’t have collision coverage on you old car, how did you get insurance money from the USAA for it when it was totaled? Was it because it was the other persons fault, so thier insurance gives you the money? Does collision coverage only matter for accidents in which it is your fault?
This May I purchased a $15000 used vehicle and it was totalled in an accident (lost control of the car, no idea why or now, on the highway and hit a concrete median. just my car, no one was hurt) this September. It was financed, so supposedly by law I was to get collision and comprehensive insurance but for some reason I didn’t have those… essentially there went $15000. Basically, you never know what freak accident can happen- tree falls down on your car- and there it goes. BTW I enjoy reading your blog =)
I am an insurance defense attorney in PA. “No-fault” does not mean that the isurance companies split payouts 50-50. If I hit someone, my insurance pays for the damage. If someone hits me, they pay for the damage.
Then what does no-fault mean then in PA?
The no-fault part only applies to personal injury not to vehichle damage. Even then you can still sue if the injury claim is over a certain amount. In addition, PA allows people to opt out of the no-fault system.
Interesting! I have plans to call my insurance company next month because our policy is up for renewal - and thus review by me.
I’d like to drop some coverage for my DH’s car - it’s a ‘98 Taurus with over 125K miles on it. I think it’s worth maybe just a few thousand. Everyone says to keep all the coverages you can but I’m starting to think why bother - if we get a $1k deductible when the can is only worth maybe $3K.
“I saw myself as a pretty safe driver, I don’t take risks, I don’t do anything stupid.”
Insurance is not just about you being a safe driver. You may be safe and not-stupid but there are thousands on the road with you who are unsafe and very stupid and make driving dangerous for everyone. Insurance is for the times when you cross paths with someone stupid and dangerous. Plus there are other things that comprehensive insurance covers that are not in your control.
Insurance is for that one bad day when things go wrong (with you or with someone else) and if it costs a few extra bucks to bail you out of that one day then it shouldn’t be much of a bother.
Jim - You said it was “worth it” to save $2000 in payments over the course of 2 years. But I don’t understand how it was actually a net savings if you then had to replace the cost of the car.
Assuming the car’s value was $10K by 2 years later, IF you had insurance they would have replaced that $10K minus the $1000 deductible, so a payout of $9000. So you saved $2000 over 2 years but you lost out on the $9000 insurance payout, right?
What am I missing here?
David - I wasn’t at fault in the accident, the insurer of the other driver paid for the replacement of my car. I bought my Integra for $14k in 2003 and in 2005, when the vehicle was totaled, USAA sent me a check for $14k.
I re-read what I wrote, you didn’t miss anything, I just wasn’t clear that the woman in the Durango was at fault, her insurance recognized that, and I was paid.
I agree with the previous commenter that no matter how safe of a driver you are, stuff happens! Animals run into the road, trees fall, and drivers get distracted. Don’t risk not having comp and collision coverage unless you are financially set up to bear the risk.
That said, I’d offer this rule of thumb to those that don’t have a car loan and can absorb a sizable loss through an established “emergency fund.” If the cost of comp/coll coverage is more than 5-8% of your car’s blue book value, consider dropping the coverages. I prefer the % approach rather than using the vehicle age. Obviously, the percentages should vary based upon where you live and your own driving habits/skills.
Sadhu - when you bought the Acura, comp/coll was 5.7% of the purchase price (prob. the blue book value) and the Corolla comp/coll was 6.25% so I think your decisions were reasonable, though not clear cut. As vehicles age, the decision becomes easier.
My bad - I meant Jim (not Sadhu). I’m am new to your site (linked off of FMF) and was reading prior comments.
Agree with Joe, his % seems reasonable. However you need to add risk into those percetages. If you are M under 25 you may want to double the %. Since you are at a higher risk.
Our country definately overinsures.
If you can afford to replace your car it is almost never a good idea to pay for collision and comprehensive (unless you plan to comit fraud and wreck your car purposefully). The cases where it is a good idea is where the insurance company has somehow mis-rated you.
Obviously if you are leasing/financing you should have c&c, the assumption being you leased because you couldn’t afford to buy, and by definition need the insurance (the exception here is if you recieved some special financing terms, which should really be a reduction in the price, the problem is the financing company will probably make you get c&c)
[...] (undetermined age) - I’m also guessing Sentra since he doesn’t explicitly say so. Blueprint for Financial Success - Toyota Celica (I’m guessing 2004) and in the center is Mapgirl - 2001 Altima SE. MyMoneyBlog drives 2002 Grand Prix which I forgot [...]
I was recently in a car accident. My car is a 1993 Ford Taurus LX. I was only covered for liability and although I have not received a ticket yet I was told that I was at fault. Will my insurance pay me anything at all for my car since I did not have full coverage? If they find it totalled will I be paid a salvage value and be able to keep the car and sell for parts.
I think the good old hit and run isn’t mentioned here! There would be no other insurance to fall back on. Then you’re out all together!
Hi, Joe,
Could you explain your guideline of 5-8% of bluebook value as a reasonable price to pay for comprehensive/collision insurance? What have you based that figure on?
Thanks!
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