Expert: Charlie Barone - 6/25/2003

Question
Hello, Charlie -
My 12 year old Volvo is not worth more than $3,000-$3300 (based on quick valuation on Internet). I am currently paying $300/year for that portion of the auto insurance that will cover damage to my car (collision).  

While I realize that there is some judgement in this, I was wondering: Is it worth it to drop that portion of the coverage and save $300/year given that the car is worth $3K?

You know how they say "If the car is too old and isn't worth much, then it may not be worth it to pay to cover damage to the car." I'm wondering at what point does this hold true? i.e., is there a rule of thumb? Is it when one can self-insure the car, i.e., a $3K loss can be self-covered (but most likely, if the car is totally wrecked, one wouldn't go out and buy another 12 year old car at $3K, but rather, a relatively new model.)
 
Regards,
Wayne

Answer
Wayne,

If it was my car I would not pay for collision and comprehensive coverage. However, this is a personal choice one must make with respect to one's ability to shoulder risk. That is, can any event in which you stand to lose the entire value of that car be endured? In the worst case scenario in which the car is totaled in an accident that was your fault, would the $3000 make enough of a difference in terms of getting into another car as reliable and good as your Volvo? If not, keep the coverage.

Insurance is about risk. Your company assumes that risk and you have none once you are covered. But as the car's value decreases the risk falls more to you. The value of your Volvo at this point is not as much as issue as the cost of replacing it with one of like kind and quality. But since you have expressed reluctance to buy a used Volvo, this coverage is not serving you very well.

Drop the coverage and drive very carefully. If someone else hits your car and has insurance, they still have to pay you.

Charlie