Does My 10-year-old Car Need Full Coverage?

I paid off my 2005 Ford Focus in November 2013. I am still carrying full coverage, but I have been told that's a waste of money. Should I go to liability only?

Our data show that 40 percent of drivers who own 2005 model cars are buying comprehensive and collision coverage - or what's known as full coverage. (See " When to drop collision coverage -- and risk it all.")

The overriding question is whether you can afford to buy another car if this one were stolen or destroyed. If you don't have the savings to buy another car or the income to make monthly payments, you're taking a much bigger chance when you drop comp and collision.

Some parts of New Jersey, your home state, are vulnerable to storms. Some areas are thick with roaming deer and others with car thieves. You'd be foolish to tempt fate if you can't afford to replace your ride. Insurance is a way to make an unmanageable loss manageable.

But if you can manage such a loss, and this is purely a money-saving exercise, do the math.

For example, a 25-year-old woman with a clean driving record living in Stirling, N.J., would pay about $1,302 a year for “full coverage” (50/100/50 liability, uninsured motorist, personal injury protection and comprehensive and collision coverage with a $500 deductible) on a 2005 Ford Focus ZX4.

Dropping comprehensive and collision, she would pay about $806 a year - a savings of $496 a year.

The car is worth $3,702 as a trade-in and $5,234 in a private-party sale, according to Kelley Blue Book. Let's use the midpoint, $4,450, as the “actual cash value” an insurance company would pay.

If her car were totaled tomorrow and she still carried full coverage, she would get a check for $3,950 - the actual cash value of the car minus her $500 deductible.

In other words, she is paying $496 a year to protect herself against a $3,950 loss. Saving nearly $500 a year now could be a great start toward paying off other bills or a newer car.

A friendly agent or a single-form car insurance comparison tool like's can make test-driving decisions on your insurance coverage much, much easier.

Sometimes the decision is clearer

Of course, the value of the car drops with each passing year, and so do the insurance premiums.

Say the Ford Focus mentioned above were a 2002 model, worth about $1,700 actual cash value. Minus a $500 deductible, the maximum payout would be $1,200.

Full coverage on the car would be $1,108 a year. Minus comp and collision, the bill would be $726.

That's $382 a year to insure against a potential $1,200 loss; most drivers would choose to accept the risk and bank the premium because they would be unlikely to find a reliable replacement with that $1,200.

There are rules of thumb, too. Financial guru Liz Pulliam Weston says dropping coverage when the premiums reach 10 percent or more of the potential payout makes sense. The example above reaches that threshold.

CBS MoneyWatch columnist Kathy Kristof puts a flat dollar value on it: the price of a running car, about $2,000. When your car is worth less than that, drop the coverage.

We have our own rules of thumb on insuring any car:
  • When the car is new and financed, you have to have insurance. Keep your deductible manageable.
  • When the car is paid off, raise your deductible to match your available savings.
  • When you would no longer put additional money for a major mechanical repair into the car - for a new transmission or engine - seriously consider dropping comprehensive and collision.

Bear in mind that some car owners with models much older than yours maintain full coverage. You can good idea of what kinds of insurance coverage drivers like you -- people with cars the same age, who are in the same age group and have a similar type of residence -- buy in's " What Drivers Like You Buy" tool.