Insurance News

Cutting Back on Car Insurance

Posted on: May 12, 2009

More drivers are saving money by keeping and maintaining their cars instead of buying new ones. Now, the economic downturn has them looking to save more by tuning up their aging cars’ insurance.

“It’s a conversation we are having more and more,” says Ron Brunell, an agent with B & B Coverage, an insurance broker in Valley Stream, N.Y. People are shopping around for price quotes and looking for other ways to save on car insurance, he says.

Insurers including Travelers Cos., based in St. Paul, Minn., and State Farm Insurance, based in Bloomington, Ill., say they have recently noticed that customers are keeping cars longer. State Farm says more drivers are choosing higher deductibles as a way to cut their premium costs.

Modern cars have the potential to last longer than the autos of decades past, so keeping them for several years makes sense. Still, rapid depreciation cuts into an aging car’s value and increases the likelihood that it is overinsured. Insurers say consumers sometimes lose track of how much their vehicles are worth and in some cases may be buying more coverage than they need.

Additionally, drivers who finance a vehicle may not realize that once they finish paying for it, they can reduce the amount of collision and comprehensive coverage from the high levels that lenders typically require. Collision covers damage resulting from a road accident, and comprehensive covers theft and damage not caused by another car.

When an older car’s value falls to just a few thousand dollars, the owner should consider dropping collision and comprehensive coverage altogether. After a point, it makes more sense for the owner to simply pay out of pocket for damages. By contrast, they should resist the temptation to reduce liability coverage — which covers damage to other people or property — to the minimum required level, says Robert Hartwig of the Insurance Information Institute in New York.

“Your 10-year-old car is no less likely to kill someone than a 2009 model,” he says.

Another way to shrink one’s insurance premium is by increasing the deductible. By doing so, the driver assumes some of the risk previously covered by the insurer. Like nearly any change to the policy, though, agreeing to a higher deductible is a compromise that can result in a substantial financial burden for the owner.

Another reason to carry plenty of liability insurance is to make sure you are covered after a collision with an uninsured motorist. About one in seven U.S. drivers was uninsured in 2007, according to an Insurance Research Council report. The group says it expects the figure to reach one in six in 2010.

Drivers can track their vehicle’s value online at Web sites such as and Your insurer can tell you how much it will pay if the covered vehicle is “totaled” after an accident. Insurers advise drivers to speak regularly with their agents to make sure their coverage matches the car’s value.

Worries about investment losses, shaky employment and other financial pressures have helped keep people away from new-car dealerships. According to a recent survey from the Polk Center for Automotive Studies, 64% of consumers are “very or extremely likely” to keep their current car longer than usual because of difficult economic conditions. The average vehicle age rose about 24% to just under four years in 2008, compared with just over three years in 2002.

Copyright ©2009 Dow Jones & Company, Inc. All Rights Reserved

%d bloggers like this: