Full coverage car insurance is not a common legal requirement if you own your car but can contribute to your peace of mind and ensure that you are protected when you need it most. If you drive a financed or leased vehicle, you will likely be required by your lender to purchase full coverage to protect their investment.
The greatest value of full coverage car insurance is the financial protection of you and your vehicle as an asset. When determining if full coverage car insurance is a practical investment to protect your vehicle, you’ll need to consider the actual cash value of your vehicle, your deductible and how ready and prepared you are to cover the cost of repairs or medical bills.
- Actual cash value (ACV): The most current and evaluated value of your vehicle for replacement cost. You can determine the ACV of your vehicle by looking up the year, make, model and trim level of your vehicle online. Then, reduce the value by any wear and tear on the vehicle, as well as any claims and unrepaired damage.
Use this simple equation for insight into how many years of full coverage you would need to pay to replace your car: (A-B/C)
- A: The actual cash value of your vehicle
- B: The cost of your deductible
- C: Annual full coverage car insurance cost
For example:
- If your car was worth $4,000, your deductible was $500 and your annual full coverage car insurance cost was $941, it would take 3.7 years of full coverage to replace your vehicle.
- If your car was worth $15,000, your deductible was $500 and your annual full coverage car insurance cost was $941, it would take 15.4 years of full coverage to replace your vehicle.
Additional considerations using the above example:
- If you have an older car worth $4,000 that you plan on replacing in the next few years, rather than investing in full coverage car insurance, your best option might be to save and set money aside for the next 3.7 years to replace your vehicle.
- However, if you drive a newer or more expensive car, a full coverage car insurance option is a great way to protect your financial investment. If your $15,000 car was totaled, your policy would cover its replacement, which otherwise would take you 15.4 years of saving on your policy cost to purchase a new car.
Full coverage car insurance decreases in value as an investment as your vehicle ages, increases miles and decreases in worth. Experts recommend that if your annual full coverage payment is lower than 10% of the value of your car, a full coverage policy may be a worthy investment.
If your policy payment exceeds 10% of the actual cash value of your car, you may consider not getting full coverage car insurance or dropping your policy. However, if you value service and unique coverage options, the best full coverage car insurance policy can provide a robust and reliable safety net.
