Lenders require car owners to carry collision and comprehensive insurance coverage on their vehicles as long as there is a lien against them (meaning, while they are being paid off). Then, once the vehicle is paid for, it is usually up to the insured to choose whether or not to carry the extra insurance. I’m blogging about this because our Buick will be paid off in June, which means there will no longer be a lien against it and we will be free to drop our comprehensive coverage and collision insurance.
Since our Buick is still worth $10,000 – $12,000 and the premium for collision and comprehensive coverage is only $425 per year (with a $1,000 deductible) it’s a no-brainer to keep the coverage. I will probably keep the coverage until the value of the car is around $3,000. Why $3,000? It just seems like a good number to me. It’s low enough that we could cover it out of our savings. In other words, if something happened to our car when it was worth $3,000, it wouldn’t put us in financial strain to pay for it out of savings.
I dropped both comprehensive and collision on our Honda Civic last year, which reduced our premium by nearly $500. It’s nice to have an emergency fund!