Ideally, you should use the 10% rule to determine whether to drop your full coverage. This principle states if your annual premium is more than 10% of your car's total worth, it's time to drop the coverage. Of course it also depends on several other factors, such as your vehicle's age, your financial state, and whether your vehicle is paid off.
What is full coverage insurance?
Insurance mandated by state law is generally basic liability insurance, which covers bodily injury and property damage in an accident. Full coverage includes a range of coverage options that extend past what is required by law. This type of coverage varies but provides many opportunities for better protection and peace of mind.
Full coverage differs by providers, but can include these types of coverage
Full coverage can include:
- Collision. As the name suggests, collision coverage protects your vehicle in case of an accident with another car, an object, or a single-car wreck. It's common to confuse collision and liability coverage. The former is a supplemental type of coverage that protects your own vehicle, while the latter is your primary insurance plan that covers damages if you're at-fault.
- Comprehensive. Conversely, comprehensive insurance covers any non-driving related damages to your vehicle. Think weather, theft, vandalism, or anything else that doesn't involve an on-road incident with an object or car.
- Uninsured/underinsured driver. This type of insurance covers damages or medical bills incurred due to a crash where the at-fault driver doesn't have adequate (or in some cases any) insurance. The amount you receive with this policy is generally determined by the damages sustained to your vehicle and/or bodily injury.
What's the average cost of full coverage insurance?
Remember, there's no single policy considered "full coverage." Your price depends on a variety of factors, such as:
- What type of car you drive
The average annual rate for full coverage car insurance is $1,548 compared to the moderate basic liability coverage of $620. Here are a few policy price statistics broken down by state:
- Florida has the highest annual full coverage rate at $2,587. (The basic yearly rate is $948.)
- Michigan has the highest average of basic liability coverage at $1,219 compared to the average annual premium for full coverage of $2,105.
- Ohio is the cheapest state to buy full coverage at an average premium of $998. (Basic coverage is around $320.)
- Some of the other cheaper states to purchase full coverage are Indiana, Alaska, and Idaho. Prices in these states range between $1,000-$1,200.
Basic car insurance or full coverage—which do you need?
Technically, you only need basic insurance. Every state except Florida requires bodily injury liability, and all 50 states plus Washington, D.C. requires property damage liability. While full coverage isn't mandatory, it's a good idea for those who:
- Are driving a much newer vehicle (particularly one you're financing)
- Your lender requires full coverage
- If potentially getting in an accident is too much of a financial risk for you
The 10% rule: A guide to dropping your full coverage
The 10% rule simply states that if your annual premium is more than 10% of what your car would be worth in the event it's totaled, you're paying too much for coverage. For example: if your premium's $300 and your car is worth $3,000 with a deductible of $1,000, you would only be getting $2,000 if your car were totaled. In this case, it might be in your best interest to drop your full coverage and stick to liability only.
Things to consider when shopping for car insurance
When you're looking into purchasing a new policy, here are some things you need to take into account.
- Depreciation, both interior and exterior
- How you'd fare financially if your car were totaled. (i.e. do you have enough to replace your vehicle if it were destroyed, stolen, or damaged beyond repair in a non-traffic related incident.)
Once you assess all of the above, it should give you a better idea of whether full coverage or basic insurance is right for you.
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