Drivers making ends meet by cutting auto insurance coverage

Monday, August 06, 2012 7:02:51 AM

Drivers are saving on auto insurance -- by skimping on coverage, according to a recent study conducted by Quality Planning, which supplies data for the auto insurance industry. The study, which looked at consumer auto insurance shopping habits between 2006 and 2010, found that consumers are cutting back on coverage and, in some cases, dropping collision and comprehensive coverage entirely on older cars.
Given the tough economy, consumers seem to be adjusting their auto insurance coverage to their finances, according to the study. And they're willing to take some risks in doing so:

Attempts to save money by dropping optional types of car insurance coverage (like collision and comprehensive) have been on the rise since 2006.
Those who did buy these optional types of coverage increasingly opted for higher deductibles.
The percentage of older vehicles (10 years old or older) without collision or comprehensive coverage climbed from 53 percent in 2006 to 63 percent in 2010. This yielded an average savings of $19 a month. Meanwhile, those with newer cars were much more likely to get extensive coverage.

All that price-cutting saved consumers an average of $229 a year, according to Quality Planning. In some cases, these savings might be worth it. As most cars get older, their values go down. Progressive recommends finding out your car's actual cash value -- because that's what your insurance company would pay you if the car were stolen or totaled. If you're paying several hundred dollars a year for possible damage to a car that's barely worth $1,000, you may want to consider dropping your collision and comprehensive coverage (or raising your deductibles).
On the other hand, these drivers may be putting themselves at risk. Progressive recommends thinking carefully about whether you could afford to suddenly replace your car. If you don't have much money saved up, that settlement from your insurance company, even if it's just $500, could be make the difference in your ability to afford a new set of wheels. Moreover, if your car isn't totaled but needs major repairs for a busted fender, dented door, shattered windshield or warped chassis, would you be able to pay a high deductible out of pocket?
There is no one-size-fits-all solution for choosing the right auto insurance coverage. Before taking a gamble by making coverage cuts, consider how much money you have set aside, the value of your car and the amount of risk you're willing to take.