How old is Too Old? When to Go Liability-Only for Your Vehicle Coverage

Requirements for car insurance vary from state to state. Liability insurance, however, is one of the minimum requirements for car insurance in all states. While state laws on the minimum liability coverage vary, many car owners opt for full coverage. According to the Insurance Information Institute, 78 percent of car owners with insurance have opted for comprehensive coverage in addition to their liability coverage.Toyota Avalon

While comprehensive coverage offers several attractive benefits, it may not be necessary for everyone. There are some situations in which you should opt for liability-only coverage.

  1. When Your Vehicle is Fully Paid For

Many people use loans to purchase vehicles. Lenders require car owners to have comprehensive and collision coverage in addition to liability insurance. This ensures that they can recover their investment in case the car is wrecked for any reason.

However, it can be very expensive maintaining full coverage for your car. If you’ve finished paying off your car loan, you’re no longer at the mercy of your lender. You can therefore reduce your insurance costs by opting for less coverage. Reducing your coverage to liability-only insurance will protect your assets in case of an accident while reducing your insurance premiums significantly. Of course, just because you’ve paid off your car doesn’t mean it’s a no-brainer to opt for liability. Newer vehicles that have been paid off quickly are smarter to insurer with comprehensive coverage since their market value is still high, which leads us to the next liability-only situation.

  1. If Your Car Has a Low Market Value

When you buy a home, its value (ideally) appreciates with time. In a few years, you can sell it at a great profit. Unfortunately, the opposite is true for cars. Cars depreciate in value the moment they leave the show room. This infographic shows that a new car loses, on average, 11 percent of its value the moment it leaves the lot after being purchased.

According to CarsDirect, car values depreciate by about 19 percent within the first year. An additional 15 percent depreciation in value is expected in the 2nd and 3rd years after purchase. By the time your car is 10 years old, the average age of a car in the U.S., the desirability for the model and its condition are the main determinants of how much it’s worth. Mileage will also affect the value of the car. It should be noted that some models deteriorate faster than others.

Calculating the value of your car is crucial to determining if liability car insurance is a better option than full coverage for you. If your car is only worth $3,000, for example, and your deductible is $1000, you will only be awarded a small sum of money after paying your deductible in case of loss or damage to the car.

Liability insurance is a better option when the value of your car is low. There is no specific age at which a car is considered old, but the condition of the car and the demand for the specific model are factors. Simply ensure your insurance is not more expensive than your car.

  1. When You Don’t Use Your Car Often

Do you have a car but don’t use it much? You may have a second car, like a large, gas-guzzling pickup truck that is only used on occasion, maybe for driving over rough terrain or moving furniture and other bulky items. It doesn’t make sense to have full coverage for such a vehicle; the odds of collision are low, so only having liability insurance is a logical, cost-effective option.

Before you opt for liability only coverage, consider raising your deductibles first. This will mean you pay less on your premiums but more out of pocket in case of an accident or collision. It is also a good idea to compare insurance policies and determine whether changing insurance providers would give you the savings you’re looking for.

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