The St. Pierre Auto Insurance Checkup

The St. Pierre Auto Insurance Checkup
Eileen St. Pierre, The Everyday Financial Planner

Health-Insurance-2It’s like clockwork. Every six months the auto insurance comes due. This time around, my husband Jeff wanted to practice what he preached and trim our auto insurance coverage on his 1991 Chevy truck. One of his pet peeves is being over-insured. I concurred.

It’s ok to drop some coverages on older vehicles.

We dropped collision coverage on Jeff’s truck years ago. His view was “If I cause an accident, then I deserve to pay for it.” Jeff is the world’s best driver. He doesn’t cause accidents. I am perfectly happy being a passenger and letting him do all the driving.

  • If you are financing a vehicle, your lender will require you to have collision coverage with a maximum deductible amount. They do this to protect their collateral.
  • Once you pay off the loan, you can increase your deductible and lower your auto insurance payments.
  • Once the blue book value drops below a certain level, you are better off dropping collision coverage because the insurance company isn’t going to give you much for the vehicle. Take the money you save on insurance payments and put it in a savings account for a new vehicle.

How much will the insurance company really pay on an old vehicle?

This year, we decided to drop comprehensive coverage. This part of your policy covers damage caused by acts of nature and theft. Because the truck is now 26 years old, the insurance company would not give him much if it got caught in an Oklahoma hail storm. Jeff could get more money for it selling it damaged – he still gets complements on it. Even an old truck has value to someone.

Insurance companies never tell you to drop coverage.

Just for the heck of it, Jeff inquired about the medical payments coverage (MPC) on the truck. This coverage would pay the medical expenses of any passengers in the truck, in our case up to $10,000. While it’s not required under Oklahoma law, it can be useful to have.

In a prior post, I talked about how important it was for us to have MPC in Oklahoma. But it turned out that we never really needed it on the truck, just our every day vehicle. The truck is not driven that often and when it is, I am the only passenger. Apparently we’re both covered already since we have MPC on our other car. The insurance company never told us this.

This year’s auto insurance checkup will end up saving us about $100 a year.

The moral of this story is to ask questions about what you really need.

Many people still pay way too much for insurance. Remember, insurance is needed for high severity events. You need to weigh the cost of the loss with the probability of the loss. The best way to handle low severity losses is not by purchasing more insurance – it’s by building an emergency savings fund.