Auto Insurance - Liability & Comp vs Full Coverage

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Topic Author
DoubleComma
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Auto Insurance - Liability & Comp vs Full Coverage

Post by DoubleComma »

Has anyone developed a "rule of thumb" they use when making a choice about having full coverage vs Liability + Comp vs Liability only coverage on your vehicles, boats, RV etc?

In the back of my mind I've always thought if I had the financial means to absorb the loss then why insure for it. Now we are fortunate enough to absorb a whole lot more than I would ever want to, so that has me thinking are there other rules of thumb to guide this decision?

I've searched the forum and saw some mentions of the collision premium being >X% of the car value which intrigues me.

Curious what others have done who have accumulated enough to self-insure, but cost/value equation is such you still feel its worth it to off load the risk.

My deeper thought is if I can develop a "rule" I'm happy with, that same rule can be applied to how high I set my deductibles.

Thanks in advance for any responses.
fortunefavored
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Re: Auto Insurance - Liability & Comp vs Full Coverage

Post by fortunefavored »

No one has replied so I'll bump it.. as I made more money and became more wealthy.. I just stopped caring that much. Your chances of being in an accident are pretty high and the hassle of dealing with the other parties' insurance company is a drag. We often see threads related to people going through that exercise. Plus if you carry collision/comp it covers you in a rental car.

So I pay an extra $600/year for collision+comp on our two vehicles. Maybe not the wisest math finance wise, but there ya go.
boglerdude
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Re: Auto Insurance - Liability & Comp vs Full Coverage

Post by boglerdude »

What math is the insurance co using. If you total a car every X number of years, when do you come out ahead
calwatch
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Re: Auto Insurance - Liability & Comp vs Full Coverage

Post by calwatch »

Having dealt for my dad when he got into accidents with just liability insurance and no collision, I will keep collision coverage just to avoid the hassle. I can file a claim with my insurance and have them subrogate the other guy.
Topic Author
DoubleComma
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Re: Auto Insurance - Liability & Comp vs Full Coverage

Post by DoubleComma »

Thanks everyone.

I hadn't though about the subrogation benefit of full coverage. My time is worth a lot, not having that potential hassle is worth it.
hayhayday
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Re: Auto Insurance - Liability & Comp vs Full Coverage

Post by hayhayday »

My collision premium on my old vehicle was about 8% of its ~10k value and I always declined however its only about 1% of my new vehicle ~60k value so I have it for time being as it seems a reasonable cost for the risk
Boatguy
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Re: Auto Insurance - Liability & Comp vs Full Coverage

Post by Boatguy »

You mentioned boats in your original post. Estimates are that between 35-50% of boats have no insurance at all. That’s a scary thought. My sense is that most folks with inexpensive boats (<$5k) choose to self-insure….but they’re only thinking about the value of the boat itself But what if you hit a wake and one of your passengers falls and breaks an arm, or if your boat sinks at a friend’s dock in 10’ of water and has to be removed? Liability insurance would take care of both, and that probably costs $100/yr. not to mention uninsured boaters coverage…considering that so many people out on the water have no insurance
TheHiker
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Re: Auto Insurance - Liability & Comp vs Full Coverage

Post by TheHiker »

From my history with car insurance, the amount I paid in premiums is approximately equal to what they paid out in claims over 20 years.
I keep paying for full coverage to avoid the hassles (because I don't like hassles). It looks like a good deal to me, though, obviously, the insurance expects to make some money off my policy eventually. Perhaps they will in the next 20 years...

The only boat we have is a kayak. Apparently kayak insurance is a thing though it never occurred to me that it can be insured...
Thesaints
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Re: Auto Insurance - Liability & Comp vs Full Coverage

Post by Thesaints »

Rule of thumb: never insure loss amounts that are indifferent to you
Topic Author
DoubleComma
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Re: Auto Insurance - Liability & Comp vs Full Coverage

Post by DoubleComma »

Boatguy wrote: Tue Sep 28, 2021 8:40 pm You mentioned boats in your original post. Estimates are that between 35-50% of boats have no insurance at all. That’s a scary thought. My sense is that most folks with inexpensive boats (<$5k) choose to self-insure….but they’re only thinking about the value of the boat itself But what if you hit a wake and one of your passengers falls and breaks an arm, or if your boat sinks at a friend’s dock in 10’ of water and has to be removed? Liability insurance would take care of both, and that probably costs $100/yr. not to mention uninsured boaters coverage…considering that so many people out on the water have no insurance
Just catching back up on this thread.

I agree its scary to think about the vast number of boats w/o insurance out there. We've run the gambit of boat types, but most recently we have been into wakeboats. Of course they are expensive and insurance on them is an incredible deal ($100k boat/$700 annual premium). Although I cover the boat for all perils, its the liability I'm primarily focused on. The risk of boating I believe is much higher than than average person thinks, the examples you gave are great illustrations. I too think about the increased risk of pulling a skier/boarder/surfer and the huge number of things that can go wrong in a moments notice. We take safety seriously on our boat, but it just takes a second and it can all go wrong.

In fact boating alone compelled me to increase our umbrella policy. I see insurance as a benefit to other, not necessarily the policy owner. If I cause an issue I absolutely want to be able to remedy that as best a possible for the benefit of the person experiencing a loss attributed to me.
JackoC
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Re: Auto Insurance - Liability & Comp vs Full Coverage

Post by JackoC »

fortunefavored wrote: Mon Sep 27, 2021 9:16 pm No one has replied so I'll bump it.. as I made more money and became more wealthy.. I just stopped caring that much. Your chances of being in an accident are pretty high and the hassle of dealing with the other parties' insurance company is a drag. We often see threads related to people going through that exercise. Plus if you carry collision/comp it covers you in a rental car.

So I pay an extra $600/year for collision+comp on our two vehicles. Maybe not the wisest math finance wise, but there ya go.
You have a point that the theory of not insuring losses you can afford to absorb can cut both ways practically if comp/coll insurance cuts hassles and the premium itself is not significant to you. In many threads about this the answer may come down to what you said but maybe the posters are a little less self aware that that's their reason and they try to claim it does make strict financial sense. I'd also add that the expected value of the insurance should be negative (or else how does the insurance company cover its costs and make a profit?) but not the whole $600. The insurance probably has expected value something like $400(?)/yr, the net expected cost might be only a couple $100/yr.

That said, I do other stuff to save a couple $100/yr and have been mentally working my way toward not having comp/coll. I've reached the point of dropping it when cars are no longer brand new (a couple of years) and for the car I have on order now, though I'm borrowing a little to get an extra rebate which means I'll have to have comp/coll at first, I'm thinking I might drop it as soon as I pay the loan early, in a few months. The insurance *is* a negative sum game, and total loss of a new car (such as I'd buy) would make me feel bad, not have any noticeable impact on my financial situation.
fortunefavored
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Re: Auto Insurance - Liability & Comp vs Full Coverage

Post by fortunefavored »

JackoC wrote: Fri Oct 01, 2021 3:21 pm <snip> I'd also add that the expected value of the insurance should be negative (or else how does the insurance company cover its costs and make a profit?) but not the whole $600. The insurance probably has expected value something like $400(?)/yr, the net expected cost might be only a couple $100/yr.
Interestingly I've read most personal property insurance companies pay out 95-99% of their premiums in claims. They make their profit off their investments and other lines - not sure how true. But interesting anyways when people feel insurance companies are fleecing them - personally I find my insurance a great value now that I am older and not in any of the penalty boxes (under 25, teenage kids, etc.)
Topic Author
DoubleComma
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Re: Auto Insurance - Liability & Comp vs Full Coverage

Post by DoubleComma »

fortunefavored wrote: Fri Oct 01, 2021 3:31 pm
JackoC wrote: Fri Oct 01, 2021 3:21 pm <snip> I'd also add that the expected value of the insurance should be negative (or else how does the insurance company cover its costs and make a profit?) but not the whole $600. The insurance probably has expected value something like $400(?)/yr, the net expected cost might be only a couple $100/yr.
Interestingly I've read most personal property insurance companies pay out 95-99% of their premiums in claims. They make their profit off their investments and other lines - not sure how true. But interesting anyways when people feel insurance companies are fleecing them - personally I find my insurance a great value now that I am older and not in any of the penalty boxes (under 25, teenage kids, etc.)
I believe you are correct. Underwriting profit, the amount made from premium in excess of claims, is desirable but not typical. I understand the real source of profit is the ability for these companies to invest the premiums they hold. If you've read any of Buffett's annual letters he routinely discusses it, he calls it the "float" and is a major source of the BRK "war chest".
Boatguy
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Re: Auto Insurance - Liability & Comp vs Full Coverage

Post by Boatguy »

DoubleComma wrote: Fri Oct 01, 2021 3:36 pm
fortunefavored wrote: Fri Oct 01, 2021 3:31 pm
JackoC wrote: Fri Oct 01, 2021 3:21 pm <snip> I'd also add that the expected value of the insurance should be negative (or else how does the insurance company cover its costs and make a profit?) but not the whole $600. The insurance probably has expected value something like $400(?)/yr, the net expected cost might be only a couple $100/yr.
Interestingly I've read most personal property insurance companies pay out 95-99% of their premiums in claims. They make their profit off their investments and other lines - not sure how true. But interesting anyways when people feel insurance companies are fleecing them - personally I find my insurance a great value now that I am older and not in any of the penalty boxes (under 25, teenage kids, etc.)
I believe you are correct. Underwriting profit, the amount made from premium in excess of claims, is desirable but not typical. I understand the real source of profit is the ability for these companies to invest the premiums they hold. If you've read any of Buffett's annual letters he routinely discusses it, he calls it the "float" and is a major source of the BRK "war chest".
[/quote
Most auto insurers have a loss ratio (amount paid to claimants) in the 60%-70% range (based upon percentage of earned premium). The other big ticket items are loss adjustment expenses and then acquisition/operating expenses. What’s generally left over is somewhere between 0-10% of earned premium in underwriting profit. Different companies have different philosophies about underwriting profit. State Farm has such huge reserves that they can actually lose money on many of their insurance operations but still make money overall from investing both their reserves and their float. Other companies are more conservative with their investments and are therefore more disciplined in requiring profit from operations.
JackoC
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Re: Auto Insurance - Liability & Comp vs Full Coverage

Post by JackoC »

fortunefavored wrote: Fri Oct 01, 2021 3:31 pm
JackoC wrote: Fri Oct 01, 2021 3:21 pm <snip> I'd also add that the expected value of the insurance should be negative (or else how does the insurance company cover its costs and make a profit?) but not the whole $600. The insurance probably has expected value something like $400(?)/yr, the net expected cost might be only a couple $100/yr.
Interestingly I've read most personal property insurance companies pay out 95-99% of their premiums in claims. They make their profit off their investments and other lines - not sure how true. But interesting anyways when people feel insurance companies are fleecing them - personally I find my insurance a great value now that I am older and not in any of the penalty boxes (under 25, teenage kids, etc.)
Numbers like that, 90's% (even slightly> 100 is possible), include the insurance company's expenses, the so called 'combined ratio'. IOW investment returns on premiums while held are important because payouts *plus expenses* are fairly close to premiums. However the raw ratio of payouts to premiums, the 'loss ratio', is more like what boatguy said, ballpark of 2/3's, hence my rough estimate $600/yr comp/coll insurance might have an expected net cost of a couple $100 (?). And it's the latter that's directly relevant to the insured. I'm not being 'fleeced' by Geico if I choose $600 of comp/coll, since I can choose not to have it and there's competition. But I do figure the negative expected value is something like a 1/3 (can't tell exactly as a given type of customer and could be less, but probably not greatly less) and I don't really care what portion of that 1/3 goes to staff expenses, gecko commercials or profit.
ZWorkLess
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Re: Auto Insurance - Liability & Comp vs Full Coverage

Post by ZWorkLess »

Our general rule of thumb is to drop the comprehensive coverage when the car is essentially "ready for replacement" anyway. I.e., if I had a significant accident in it, would I want to have it fixed and keep driving it or would I get rid of it and get a new car. Also, I want the car paid off before dropping comprehensive coverage, because having to pay off a loan would be really annoying if the car were dead. This works out pretty well for us.

Generally, our cars have been purchased new for 25-35k and and we've never financed for longer than 5 years (at under 2% interest) and we tend to put a lot of miles on them, so around 5 years, the car is definitely paid off and is typically has 100k miles on it and is maybe worth 10k-ish, but we could easily afford a replacement at that point. For us, that time is generally when we've dropped comprehensive coverage. Then we drive them until the wheels fall off (which seems to happen for us around the 6 - 8 year mark, around 150k miles). Then we start over with a new car and full coverage. Our newest car was substantially more pricey (around 54k), and that's the first time we've bought such a pricey car, so I'm not sure if the numbers will work out the same way, so we may tweak that plan for this car, especially as I don't drive so many miles in recent years since our kids are now grown and have their own wheels and my parents are gone (so no more frequent road trips to visit them.)

Once our kids started driving and got on our insurance and insurance rates rose, we became a bit quicker to drop comprehensive coverage. This summer, we decided to drop comprehensive on a 5 year old car even though it only had maybe 80k on it and is in really good shape because with it being the primary vehicle for our college kid, the rates were high enough that they'd be close to 20-25% of today's value each year. We might have kept full coverage for another year or two if the rate wasn't so high on it. Dropping full coverage cut the cost by well over half, might have been more like 70% less.

I suggest checking with your agent to find out what the costs of the various levels of coverage would be. IME, once I talk to my agent and get hard numbers, the answer generally seems pretty obvious.
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