But then it got me thinking about current out-of-pocket costs
“If I wreck this car, I’m either repairing it for less than the deductible ($500) or it’ll be a total loss. Either way, collision insurance most likely won’t be involved. So… Why in the world am I paying the premium?”
Next, I took a look at the value for Monica’s car; a 2007 Buick Lucerne: $3,100. Same question with this one? Which led me to the same answer – “I have no idea.”
So back to the insurance agent and my original question
“What do I save to cancel these premiums?”
Agent – “Well, you’re looking at about $450, annually, for both vehicles.”
For the math-challenged out there, that’s $37.5/month in savings. Which is a significant saving for the budget and in general.
So – I’ll work on my back-of-the-napkin-calculations for your amusement (and I welcome any input in the comments section below!!).
If we are able to drive both of these cars for 3 more years without catastrophic damage, our savings in premiums would be $1,350! That figure comes with the understanding that we neither care for nor will repair minor damage to these cars. Also – if we can drive them for longer than 3 years – we’ll do that.
4 years = $1,800
5 years = $2,250
Let’s not get too crazy here. I’ll also factor in that we haven’t made a single car payment for about 2-whole years now (this is like savings on top of savings!).
Then I got to thinking (again): what are the chances that one of these cars dies and it is because of a collision? Well, glad I asked.
This Forbes article tells me that if I’m an average driver (a different argument for a different day), I should expect to file a collision claim once in every 17.9 years! Referencing the deer incident above… I should be good for a while (knocking on wood, crossing fingers, and praying).
Don’t fact check this math, but based on the Forbes article, I am calculating that I have a 16.7% chance to crash my car at a claim-worthy-level within the next 3 years. Not too bad…
Given the above and treating the cars independently, I’ll take the guaranteed savings of $1,350 vs the 16.7% chance of totaling each car within the next 3-years (expected cost of $367.4 for the Camry and $517.7 for the Buick, or $885.1 total).
This is all assuming that insurance would pay the total value of the vehicle. When we discount that number to reality, maybe I’d expect to get $1,500 back from the insurance company for my car… I’m thinking that’s an optimistic number.
Conclusion – why I canceled collision auto insurance for both our vehicles
It’s simple really. I have a guaranteed savings of $1,350 over 3 years by not paying these premiums and I would expect to pay roughly $885.1 to replace both cars (factoring in the cost of vehicles and chance to total them) over the same time period. I’ll not pay the premiums, save those funds, then put the cash toward replacement should the worst happen.
What happens if we total 1 car?
No big deal. Hopefully this would be later into my 3-year time period, but either way, I could buy an inexpensive used car (beater) to get me from A-B until we’re able to save up enough cash to level up to a gently-used car. I would keep collision insurance off of these vehicles to help boost the budget, my savings, and lower the time until the level-up car purchase.
What happens if we total both cars?
Delete this post, the email that went out to my lovely and amazing MikedUp Blog subscribers, and write some article about how terrible our luck was that we totaled both cars at the same time (bonus points if we crashed them into each other). Then, I would chronicle our story to saving cash while buying 2 beaters, leveling up, and eventually achieving frugal-dominance.
The ads I could sell on that series of posts would hopefully ease the karmic pain that I would have caused myself…
How did Monica take my bulletproof pitch?
“That seems like a good idea. AND you seem very fired up about this so there’s about 0% chance I’ll change your mind. So – sounds good.” And with a passing kiss on the cheek, we were back about our normal Sunday routine.
Do you have collision auto coverage and if so, does this post make you think twice? Is there something I’m not thinking of that you have in mind?
Or – did you actually fact check my math and have an issue with my results? Either way, let us know in the comments section and we’ll keep this conversation going together!
Thanks for reading!
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