When purchasing car insurance, you have a lot of options. One of those options is whether or not to purchase full coverage, and what your deductible should be. These two decisions are made easier by the value of the vehicle, but value alone is not the only factor you should consider. Value, cost of full coverage, and the insurance deductible should all be assessed before the final decisions are made.
The value of full coverage car insurance
Full coverage car insurance is insurance that not only protects you from liability situations, but also protects and repairs your vehicle from damage. Full coverage car insurance gets increasingly valuable as the value of the vehicles you own get more and more expensive. If you have full coverage on a vehicle like a Dodge Neon worth $2,000, the largest benefit you can get out of having full coverage vs. liability only insurance is $2,000 (the value of the vehicle). On the other hand, if you own a very expensive vehicle like a BMW 5 series worth $40,000, you stand to gain a lot more if your car gets stolen, totaled, or severely damaged.
All car insurance companies insure vehicles on an actual cash value basis, so when you file a car insurance claim, you will rarely (if ever) receive more than the Kelly Blue Book value of the vehicle. Many people will argue that it makes no sense to insure a car at full coverage that is worth very little. Sometimes that is correct, but it’s not an assumption that can always be made. The price of full coverage car insurance is based in part on the value of the vehicle and its car insurance deductible.
Full coverage car insurance is priced according to car value
When an insurance company offers a full coverage premium for a vehicle, it bases the cost on many factors. The largest factor, however, is often an evaluation of what the car is currently worth. If the vehicle is only worth a few thousand dollars, the insurance company will typically make full coverage very cheap. The opposite is true of more expensive vehicles. As a result, it isn’t a fair to automatically assume that a cheap car shouldn’t be insured fully; the costs and the benefits of every situation need to be weighed.
Changes in the deductible can lead to large changes in insurance cost
Besides the value of the vehicle, the car insurance deductible also plays a big role in the cost of full coverage. Today, many car insurance companies are offering deductibles that range from $0 all the way up to $1,000 and higher. With a lower insurance deductible, the price of the insurance policy is more expensive. The key for many drivers is to find the happy medium between a low deductible and a reasonable premium for car insurance. Most drivers have found that a deductible of $500 is the amount that meets the above criteria.
Overall, full coverage can be a very important type of insurance to carry, regardless of the value of the vehicle. Before full coverage is assumed to be appropriate, however, each driver should consider a) the value of the vehicle b) the cost of adding full coverage, and c) what deductible makes the cost the most attractive.