Dear Dave,
I’m following your plan and trying to find different ways to save money. What’s a good way to decide whether or not you need full-coverage insurance on an automobile?
Barbara
Dear Barbara,
I think you should look at a couple of things. First, you need full-coverage or collision if you don’t have a lot of money, because you’ll end up walking if the car gets totaled. You need this coverage even if it’s a $2,000 car. You might keep the deductible a little high to save on premiums and then, if something unexpected happens, you can cover the out-of-pocket expense with your emergency fund.
Let’s say you have $50,000 in savings. You’re driving a $5,000 car, and you decide to drop collision coverage because you’re thinking if you total it you can just write a check and replace the car. You can, but then you have to look at the other side of the coin. What does this collision coverage cost per year versus the $5,000 risk you’re taking?
I’ve run those numbers a few times, and generally I find collision insurance to be a pretty smart buy!
—Dave
* Dave Ramsey is America’s trusted voice on money and business. He has authored five New York Times best-selling books: Financial Peace, More Than Enough, The Total Money Makeover, EntreLeadership and Smart Money Smart Kids. The Dave Ramsey Show is heard by more than 8.5 million listeners each week on more than 550 radio stations. Follow Dave on Twitter at @DaveRamsey and on the web at daveramsey.com.
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