Full-Coverage vs. Liability Car Insurance?

Featured Article, Finance, Home & Family
on October 8, 2012

Dear Dave,
What’s a good way to decide whether or not you need full-coverage insurance on an automobile?
—Barbara via My Total Money Makeover

Dave Says: I think you should look at a couple of things. First, you need full-coverage or collision if you don’t have a lot of money, because you’ll end up walking if your car gets totaled! You need this coverage even if it’s a $2,000 car. You might keep the deductible a little high to save on premiums and then, if something unexpected happens, you can cover the out-of-pocket expense with your emergency fund.

Let’s say you have $50,000 in savings. You’re driving a $5,000 car, and you decide to drop collision coverage because you’re thinking if you total it, you can just write a check and replace the car. You can, but then you have to look at the other side of the coin: What does this collision coverage cost per year, versus the $5,000 risk you’re taking? I’ve run those numbers a few times, and generally I find collision insurance to be a pretty smart buy!