You should only drop full coverage car insurance if you are confident that it makes sense financially to do so. To meet this guideline, typically cars will be older and their resale value will have dropped. Take the time to do the math and find out how the value of your car fares in light of your insurance deductible and the premiums you pay annually.
You need to also be aware of the fact that you should never drop full coverage car insurance if your vehicle is financed. Finance companies require you to carry full coverage in order to protect their investment.
Calculating Whether or Not To Drop Full Coverage
You will need to look at a variety of factors when trying to decide whether or not to drop full coverage. First you should find out the actual blue book value of your car. Vehicles lose value rather quickly and you may be surprised to find how little your car is actually worth, even after just a few years of use. You also need to know how much your full coverage, beyond what is required by law, costs per year.
To do the math, subtract the amount of your deductible and the amount your beyond-the-basics full coverage insurance is costing you from the present value of your car. How much is left? If the amount is a number that you could not afford to pay out (even if you struggled or tightened your belt a little) then you should probably continue to carry full coverage insurance. However, if the amount is rather insignificant, then you should simply drop full coverage and save the extra amount you would have paid for the coverage in case you need to use it to cover damage from an accident or other type of loss.
If there is still a lien on your vehicle, this means that you share ownership of it with another entity. Therefore you must carry full coverage so that if your vehicle is damaged, you will have the ability to make the necessary repairs. If you were to drop full coverage from a financed vehicle, the lienholder will likely require you to repay your loan in full right away. If you have done the math and realize that your car’s value and the high cost of full coverage insurance just does not make sense any more, focus on paying off the car in full, so that you can drop the full coverage insurance.