The cost of owning a car goes well beyond the sticker price at the dealership. There are fuel costs, routine maintenance and, of course, car insurance.
The seemingly endless options for car insurance can be overwhelming, so many drivers end up opting for coverage they don’t actually need.
Liability coverage is the most basic form of car insurance and is absolutely necessary. Should you be deemed at fault for an accident, liability coverage will take care of the medical costs for other people injured and costs of repairs for other vehicles — but not yours. Some states require additional types of coverage beyond liability.
However, there are certain types of coverage that you can and potentially should opt out of, depending on the value of your car, your current finances, your health insurance policy and more.
So what types of car insurance can you skip?
1. Do I Need Collision Insurance and Comprehensive Coverage? When to Skip
Collision insurance covers damage to your car in the event of an accident, whether you were at fault or not.
Comprehensive instead covers damage to your car outside of an accident, like flood damage due to a hurricane, vandalism, theft or fire.
If your car is worth a lot of money, you should absolutely carry these coverages, and if your car is financed, your lender may require you to. But you may be wondering: Do I need collision insurance, especially if my car is old?
If your car is old or you paid a small amount of cash for a used car that may only last for a few months, you’d be wasting your money to get collision and comprehensive.
“Your reward is diminished greatly once your vehicle has depreciated over the course of time,” said Melanie Musson, insurance writer for CarInsuranceComparison.com. “So, if you’re paying monthly for coverage that’s going to provide you with minimal payment should you total your vehicle, and then you’ll face higher rates after making a claim, it’s just not worth it.”
One caveat: Be prepared to pay out of pocket to fix the car or, more likely, to purchase a replacement vehicle. But if your vehicle is only valued at $1,000, it may be better to put money each month into savings for a replacement vehicle than to shell out money for coverage on that low-value vehicle.
Chris Tepedino, also of CarInsuranceComparison.com, warns that bundling uninsured motorist and collision is often a mistake.
“Uninsured motorist protects your car if it’s hit by someone who doesn’t have insurance,” he said. “Collision, well, protects your car. Don’t be suckered into thinking you have to buy both. Overlapping generally doesn’t help.”
2. GAP Insurance: It Depends on Your Down Payment
Vehicle depreciation can be a major detriment to your finances, especially if you wreck your vehicle shortly after financing it.
Because a car loses about 20% of its value when you drive it off the lot, insurance will only cover 80% of the initial sticker price should you get in an accident on your way home. That means you will be responsible for the other 20%. With the average new vehicle costing $37,401, that could mean you lose out on nearly $7,500.
That’s where gap insurance (guaranteed asset protection) comes in, covering the difference between what you paid for a new car and how much your regular insurance is willing to pay for the totaled vehicle.
But depending on how much you put down for the car versus how much you financed and how much that car is worth, you might not need gap insurance.
“Gap coverage isn’t necessary if you’re able to financially handle the risk of paying the difference between what you owe and what your vehicle is worth when you’re upside down on a vehicle loan,” Musson said. “If you make a 20% or greater down payment, your risk for needing the coverage is greatly lowered, and you may be able to forgo that coverage.”
Similarly, you don’t need gap coverage if you’ve paid off your vehicle or if you purchase an old vehicle that won’t depreciate as quickly, Tepedino said.
FROM THE INSURANCE FORUM
3. Rental Car Reimbursement: Probably Not Worth It
A luxury option you can add to your policy is rental car reimbursement. If your vehicle is damaged and must be repaired, this coverage gets you a rental car to use while your vehicle is out of commission.
However, the cost of paying for this each month would likely exceed the cost of a rental vehicle, unless you crash frequently or need a rental for multiple weeks.
Even then, you may be better off relying on friends and family for temporary transportation, if possible. If you live in a two-vehicle household, consider getting by on one vehicle temporarily instead of opting for this coverage.
4. Roadside Assistance: Check Your Warranty First
Similarly, you can opt for roadside assistance for help with jump-starts, flat tires and more serious problems that leave you stranded. However, many new cars come with roadside assistance, often throughout the length of the warranty.
“You can skip roadside assistance, as long as you realize you’ll have to pay for a tow out of pocket,” Musson said. “You may even be able to find it cheaper from AAA or a similar service.”
If you live paycheck to paycheck, this additional insurance expense is one to avoid.
5. MedPay: Depends on Your Health Insurance
Medical payments coverage, also known as MedPay, is an optional coverage that assists with medical expenses after an accident. However, if you have decent health insurance, you can likely skip this coverage.
Want to Save Money on Car Insurance? Proceed With Caution
The cost of your insurance is proportional to the deductible and coverage limits you choose. The lower your deductible and higher your coverage limits, the more you’ll pay in insurance premiums.
“This is a little dangerous, but if someone is wanting to save money, going with lower coverage limits may help,” Tepedino said.
But Tepedino warns that this is a risky way to save money. “The average cost of an accident with property damage alone is $7,500,” he said. “That number obviously jumps with a death or severe injury, so go at your own peril.”
Brent Weiss, a certified financial planner and co-founder of Facet Wealth, believes there are some types of coverage you can consider avoiding, but he urges caution when you’re shopping for car insurance.
“I am not a fan of simply meeting state minimums,” Weiss said. “It puts too many families at risk of a financial loss they cannot cover. In general, I recommend having liability coverage for bodily injury and personal property, underinsured and uninsured motorists, and collision and comprehensive coverage for most cars. There are some personal injury coverages that may be required, but limits are typically low. The bottom line is that you want to get the right coverage with the right limits and not simply shop for the lowest premium. You often get what you pay for.”
Timothy Moore leads a team of editors and graphic designers at a market research company as his full-time gig. As a freelance writer, he writes about personal finance, careers, education, pet care, travel and the automotive industry. His work has been featured on Debt.com, The Ladders, Glassdoor and The News Wheel.
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
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