Full Coverage Insurance

[quartet-man]

I have a relative who came into some money. She has had a history of making poor financial decisions, but has tried over the past several years to get better (although she has had some missteps). When she had to get a new vehicle over a year ago, and ended up having to get a 2010 used model and pay high interest due to her credit history not being cleared off yet. I believe the interest is around 21% which of course if insane, but she needed the vehicle to travel back and forth to her job.

Anyhow, she is going to take my advice and get out from under the car loan. The question is insurance. Once it's paid she wouldn't HAVE to have full coverage. I helped her find a good deal on insurance, but not sure how much she is paying now nor what the difference would be.

The question is, what are people's thoughts on continuing full coverage versus not. If continuing with it for now, when is the time to make the change. I realize there is no easy answer for this and insurance is such that both sides are gambling on who comes out ahead (although I suspect the companies stack the deck in their favor as much as they can).

EDIT: By the way, this has nothing to do with the argument alluded to in the other thread except the person was a participant in the argument (which was about something totally different. )

[Bob338]

"Full" coverage is somewhat of a catchall which also includes third party coverage (liability to others.) Presumably you're talking about first party insurance for collision or comprehensive type damage.

The measure of coverage is determined by what the owner can afford to lose, or to pay as a deductible in case of a loss. This has to be weighed by the amount of deductible the owner can afford to pay as well as the value of the vehicle involved. If you have $100 deductible the premiums can be significantly higher than for $500 deductible. Should the owner have a collision can that owner afford to pay the deductible? Can the owner afford the loss of the entire vehicle? There isn't a recipe for all. Each case has to be handled on merits and affordability and you have to weigh the premiums against the possibility of loss.

As any of my vehicles get older and the value diminishes, when it hits a certain plateau I quit carrying ANY collision coverage. I carried comprehensive coverage mostly to cover total theft and I put a deductible on that, which lowered the premium significantly but makes me totally responsible for the interior spills and rips, and replacement of windshields if necessary, as well as the nit picky types of vandalism. In my case the plateau for any car is $4000. value after which I must weigh junking it or replacing the nit picking things that go wrong from comprehensively covered incidents. On all my cars (3) I carry $500 deductible collision and comprehensive coverage until I reach my personal plateau for value. That is acceptable to most banks and financing or leasing companies. You have to apply similar logic to any situation in order to weigh the financial aspect of the matter.

[EzyStvy]

Ditto to the above...

Does she have any history of wrecking cars?

You mentioned that she came into some money? Is it A LOT of money?

A $1,000 per year for full coverage vs - needing $15,000 for a new used car...

[quartet-man]

As far as wrecking, she has had a couple of accidents or so in recent years, but I am not sure she even turned them in due to her deductible and not wanting her insurance to go up. She has only once had an accident that totalled the car and that was someone else's fault and back probably 20 years ago.

Basically the money she came into will pay off the vehicle and maybe some left over. I advised her to start putting back the money she would normally use to pay her payment with in the bank to start saving for the next one. Now, I am not sure if she will be disciplined enough to do that month after month, I hope so. I guess part will depend on just how much the difference is, however getting another vehicle would probably be a bit of a hardship (especially with her credit still being as it for the next little while).

[Petef56]

How about this, assuming that she has enough money in the bank to pay for any vehicle repairs, get insurance estimates for "full insurance" versus "minimal insurance". Minimal being the largest deductible rate and no collision. Buy the minimal coverage and make sure she invests the difference each year.

Now that she uderstands that she will pay for the repairs to her own vehicle if she is at fault in an accident, she will natually drive more carefully, and dramatically reduce her chances of having an accident.

It works for me. I have not caused any accidents in over 30 years and I probably have an estimated $15,000 to $30,000 in my pocket that would otherwise have been paid to insurance companies.

---pete---

[Force Flow]

Since it's a newer car, I'd say that it would be a good idea to have at least some collision coverage. If it were an older car (5+ years), it can sometimes cost more than the actual value of the car.

[quartet-man]

My word, she has paid on the car nearly a year and a half. I don't have exact figures, but it appears that maybe only 4-6 of those payments have gone towards the principal. Then, by paying it off now, she is pretty much doubling her money. In other words, the amount of interest she would have paid had she ridden it out the other 4 and a half years is nearly the same amount she is paying now in principal to pay it off.

[bob]

If she has bad credit then she probably has credit cards with higher intrest. Pay them off first, sell the car, and buy a hooptie. I never bought comp and have saved at least 30K.
The most they will pay is blue book value unless you pay a lot extra.

[quartet-man]

Actually, the only credit card I know of her having is one with fairly high interest, but it isn't real high the last I knew. That is a good point though. I hadn't thought about her credit card for a while. She should pay that off with the remainder of the money (it looks like she will have more left over than thought). Hopefully in the future she can get her credit cleared and get a better card, but that is one place where she might not handle as well as she should. When she first got the card (one I think she has to pre pay) it was to get her credit in better shape and she wasn't going to carry a balance. However, she has had me make online payments for her before and she had a balance nearly to the top I think, so she hasn't been as responsible with that as she should have. However, she is doing considerably better than she once did. She needs the vehicle due to her job as she puts several miles on it a week and the terrain isn't always the greatest.

BTW, it is interesting to read the different perspectives here as I hadn't thought of some of the things here.

[David M]

There is a bigger picture to this, more than just the car and the insurance. She needs to talk to someone to help her get her financial life on track.

HowardClarke.com has people she can talk to for free that can lead her in the right direction. They can lead her to the right people, legitimate free financial counselors.

It's not a simple fix from a computer website. There is a much bigger picture that she needs to learn.

http://www.clarkhoward.com/cac/cac_about/ It's not just consumer issues.

[quartet-man]

I've helped her some and she has done better. A lot of the issues were from 7 years or so ago, maybe longer. She is just still paying for it now as some things didn't drop off. To a large degree she has learned her lesson and I am glad she is apparently going to follow through on the car payoff and credit card payoff. She has no internet access, which is why I helped some with the online payments. I think she finally saw how much trouble she had in not even being able to get a decent loan, a regular credit card etc. and now seeing how much interest she has paid and was going to pay.

[David M]

Credit records are kept on file for seven years with the three credit agencies. She should be close having half decent credit provided she has a job, does not have large amounts on her credit card(s) (over 30% of her credit limit) and has not had any late payments over the past 7 years.

I would get rid of the nice car and the loan that came with it and pay cash for an inexpensive used car. 21% is robbery and makes no financial sense. Just get the state minimum for P&I with no collision coverage for her inexpensive used car, which of course means coverage for other vehicles and uninsured or underinsured coverage.

Anyone can get free internet access at the public library.

[quartet-man]

Well, the vehicle is due to the distance away that her job is, the roads, and the fact she needs dependable transportation etc. She is paying off the vehicle with the inheritance as well as the credit card. I am not sure what has stuck with her report, but they tried to get her on a very old bill that I think she had paid (where someone bought the debt cheap). She knew that if she did anything with that, it would start all over again on her record, so she didn't.