What’s your number? We all have a number.
There comes a day and time when you will find yourself pondering whether or not you should continue carrying comprehensive/collision, commonly known as physical damage and paying premium for this coverage on your vehicle.
If you still have an outstanding loan on your vehicle, figuring out what your number is at this time is a moot point. However, there will come a day when you pay off that loan and figuring out your number will be beneficial to you because that may mean more money in your pocket.
So, when is it the right time to remove comprehensive/collision coverage on your vehicle?
Scenario… you own a 2010 BMW 5 series and the book value is $15,000.
If you were to total out your 2010 BMW 5 series, no question about it, $15,000 certainly helps in securing a replacement vehicle. Here’s the kicker, there are two other factors to keep in mind. How much are you paying for the comp/coll coverage and what is your deductible? So let’s recalculate… assume you are paying $700 in premium for the coverage and then you have a $1000 deductible. So now if you were to total out your vehicle, your net outcome is the $15,000 value, less the $700 premium, less the $1000 deductible. This leaves you with a net amount of $13,300.
Does the number $13,300 help you much in securing a replacement vehicle? If so, you have not found your number and by all means continue to purchase the comp/coll coverage.
What if your vehicle value is $6500 and your premium is $600 and your deductible is $1000? The net outcome is $4900. How much does $4900 help you in securing a replacement vehicle? If it doesn’t help all that much to you, you may have found your number! You may want to consider removing the comp/coll coverage and save the $600 premium.
In summary, try this for yourself. Determine your actual vehicle value and the premium you are paying for the physical damage coverage along with your current deductible. Now calculate your net number in the event of a total loss. If you feel your net number will help you secure a replacement or even help you with substantially lowering your monthly payment on your newer vehicle, again you haven’t found your number. If the net number is minuscule, you may have found your number.
Working with my clients over many years, I have seen numbers like 5,000 to 25,000 and everywhere in between.
My number is 8,000. What’s your number?