At what value of your automobile should you change from full coverage to liability?
When the current value or fair market value of the house is smaller than the premiums you would have paid for full coverage.
You see, the insurance company will only pay you up to the fair market value of your car. And it doesn't make sense for you to continue paying for something that may or may not happen. Even if the car is still repairable and in good condition, the insurance company may decide to just declare it a total loss and pay you the fair market value less your deductible.
When to drop coverage?
Full coverage will pay you if your car is damaged due to a collision, theft, vandalism, windstorm and any other covered peril listed in your policy. Liability insurance is the minimum legal requirement and is the cheapest. What you need to do is to get the difference between the premiums you pay for full coverage and premiums you pay for just the liability coverage. If the difference of the two annual premiums is smaller or even slightly bigger than the maximum you could collect, then you could already drop full coverage.
Really, there is no set amount to which the value of your car may fall that will make you decide to drop from full coverage to liability. However, some say that if your car's value falls below the $5,000 mark, then it is reasonable for you to shift to just liability cover.
Take a look at the bluebook regularly so that you are updated on your car's current value.
Another thing that can help you decide to switch from full coverage to liability will be if you can already have enough savings and can afford to get a new car once your current car is totalled or declared a total loss.
Thus, if the value of your car goes down to a certain point, it will be advisable to drop collision cover, put aside the savings for the time when you can already trade your old car for a new one.
You can't drop coverage if:
- You still owe money on the car
- Your car still has a high market value
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