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Car Insurance for Low-Value Cars: What Kind of Coverage Do You Need?

Most people don't drive shiny, expensive new cars, but they are unfortunately paying car insurance rates like they do. The fact is, you shouldn't be paying for as much collision and comprehensive coverage for an old, used car, e.g., one with more than 100,000 miles, vs. a newer car. By doing a little homework and re-setting what your policy covers, you could save a several hundred dollars each year on your car insurance premiums.

Waive Comprehensive and Collision Coverage

Comprehensive and Collision coverage pays for damage to your car in the event of an accident or some other event (e.g., vandalism, car theft). Most people have this coverage (70%+) even though it's not required by any states (unlike liability coverage to cover damage you cause to others), and it's usually a good idea to carry this coverage.

But, if you car is worth less than $5,000, you may not want collision or comprehensive coverage for your vehicle. Why? Auto insurance policies only require the insurer to cover your financial losses, not necessarily to replace your vehicle. In the case of an accident involving an older car, the cost of repairing it can quickly exceed the fair market value of the car, and your insurance carrier will pay you what the car was worth rather than fix it. In many cases, the value of the car may be less than premiums paid for the coverage. Therefore, if your vehicle is worth less than a few thousand dollars, there is little reason for you to purchase collision or comprehensive coverage, because you are likely to pay more money in premiums than you would ever receive as a result of your claim under such a policy.

Other Options: Seasonal Insurance

Many people have two cars: one less expensive car for winter driving (where there is a lot of wear-and-tear) and one car for the summer months that is decidedly more sporty. However, insuring both vehicles for the entire year may be costing you more money than you need to spend depending on the state in which you live.

Insurers in some states offer seasonal or partial insurance on vehicles. If you own an older car that you only drive during certain parts of the year, a seasonal coverage policy can cut down on the cost of insuring vehicles that are left covered or garaged for significant portions of the year. Keep in mind that state laws regulate these types of policies, and not all states allow for seasonal coverage - be sure not to find yourself ever driving your seasonal car without insurance.