Great 8 Tip #6 - Physical Damage Coverage on Older Vehicles

Jeff Ryan - CLU, ChFC, AIA, CIC, CPCU

July 31, 2024

Great Eight number Six (6) suggests taking a look at removing Comprehensive and Collision on Older Vehicles.

Like some other tips in our Great 8, this one applies to some but not all clients.

This strategy makes sense for the person who owns an older vehicle and is paying a considerable premium for physical damage coverage, namely comprehensive and collision.

We have often found this true for younger drivers and those with less-than-stellar claims histories who are paying increasingly high auto insurance premiums. Those drivers can not afford the consequences of claims frequency. For them, this strategy also reduces the temptation to report comprehensive and collision claims, which would show in their Comprehensive Loss Underwriting Experience (CLUE) report (see Great 8 Tip #5) for the foreseeable future.

Another group that benefits from a clean CLUE report is those under 25. Regardless of the driver's age, an example of where this might apply is a person who insures a 10-year-old vehicle with high mileage but pays more than 1/10th of the vehicle's value in physical damage insurance coverage each year.

Real World Example:

Johnny, who is 21 years old, is buying a used Kia Optima worth $5,000. Adding comprehensive and collision coverage on this vehicle costs $1,000 per year. In this scenario, Johnny pays $20 for every $100 of coverage. Put differently, they are paying 20% of the vehicle's value every year for physical damage coverage, creating an expense for the total value of the car in less than five years (considering depreciation).

We realize that physical damage coverage would be necessary if a lien on the vehicle comes from a bank car loan. An alternate form of financing that doesn't require the vehicle to be put up for collateral may be worth pursuing.

This rule of thumb dovetails with Great Eight Tip #4, where statistics show that the average person has a Comprehensive or Collision claim every 11 years. That suggests that when the cost for physical damage coverage approaches 10% of a car's value, it would be worth considering this option.

If you have drivers on your auto insurance policy who are under 25, it might make sense to consider "starter" vehicles for them to drive rather than a car that will cost a lot more to insure.

We are willing to review scenarios with you to see how this strategy may work for you and your family. For more information, give us a call, stop in, or email us at Service@RyanAgency.com

About the Author: Jeff Ryan has been a licensed insurance agent since 1978, later becoming a full-time insurance professional in 1983. Since then, he has been the principal of The Ryan Agencies with offices in Hornell, Jasper, and Wellsville. The agencies serve approximately 15,000 clients in New York and Pennsylvania. Jeff holds numerous credentials including the Chartered Property & Casualty Underwriter (CPCU), Certified Insurance Counselor (CIC), Accredited Advisor in Insurance (AAI), Chartered Life Underwriter (CLU), and Chartered Financial Consultant (ChFC) designations. He holds a Master's Degree from the American College. Jeff enjoys writing about all things insurance and welcomes your questions and feedback.

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