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When should I reduce my insurance from full coverage?

The purchase of a new car is the single most expensive thing that people buy other than a home. The purchase of a new car can reach well over $25,000, with the average vehicle purchase closer to $30,000.

Due to the nature of vehicles in general, they are going to depreciate rapidly and because of the price of cars, many people will be financing their vehicles.

Financed vehicles require specific insurance coverages designed to shield the lender from loss. For more information on the particulars on insuring a financed vehicle, see this article on financing. [Insert Lender Insurance article here]

A minimum amount of insurance on your vehicle is required by most states in order to register it in the state. This minimum is limited to liability coverage for person and property. While it is intended to protect people that you might hit with your car or passengers in your vehicle during an accident, it is not sufficient insurance to carry for a $30,000 vehicle.

If you are involved in an accident and carrying full coverage insurance, which includes comprehensive and collision, you will be better able to replace or repair a $30,000 vehicle.

Carrying full coverage insurance is not cheap, but it is less expensive than being underinsured and required to pay cash for damage or injury. If your coverages are less than $100,000, it might be best to call your agent and get some auto insurance comparison quotes to see if you can afford to raise your limits.

Within a five-year period, your $30,000 vehicle will be worth roughly 50 percent of the original purchase price. The average car loan is close to five-years and between the depreciation and the interest you have paid over the five years, you have a lot of money invested in your vehicle.

As your car depreciates further and your loan is paid off, you may look to save money on your car insurance and may decide that paying comprehensive and collision on your car is no longer financially sound.

When you reach the point that your vehicle is worth less than what the insurance company would give you if it were totaled in a crash, you can stop paying collision and comprehensive insurance on the vehicle.

You have no loan on it any longer and by calling your insurance company, or comparing auto insurance quotes, you can find out how much you would receive as actual cash value for your vehicle.

If your car is only worth $3,000, then put the money in the bank yourself rather than pay the premiums on comprehensive and collision insurance.

If you feel you need to carry some sort of full coverage insurance on your vehicle, then raise your deductible and get comparison auto insurance quotes. You can put the deductible amount in your bank account and earn interest. If you are a safe driver, you may never need to use that money as a deductible; instead, you can use it as a down payment on your next new car.