Driving an Older Car? Here's Why You Could Be Massively Overpaying for Car Insurance

Car insurance costs have skyrocketed over the last year. The average annual premium in the U.S. is now about $3,699. Some drivers pay considerably more if they have accidents on their records or less experience behind the wheel.

All motorists want to do what they can to keep their costs down. Shopping around and raising the policy's deductible can help. But for drivers of older cars, dumping a few traditionally recommended protections could be the best way to save.

How valuable are your car insurance protections?

Some car insurance coverage is non-negotiable. Nearly all states require their drivers to have liability insurance to protect others on the road, for example. This includes bodily injury liability coverage, which pays for the victim's medical care. Property damage liability pays for damages to the victim's personal belongings, including their vehicle.

Most other car insurance protections are optional, though some are strongly recommended. Two of these are collision and comprehensive coverage. Collision coverage pays for repairs to the driver's own vehicle following at-fault accidents with another driver or single-car accidents. Comprehensive coverage pays for the policyholder's vehicle repairs following natural disasters, vandalism, theft, and more.

They're smart investments for many drivers because they protect the policyholder from paying for their own vehicle repairs entirely out of pocket. But they're not always a great fit for drivers of older vehicles. A car's value depreciates over time and eventually, its collision and comprehensive coverage could become more costly than the car's value.

When collision and comprehensive coverage are no longer worth it

The Insurance Information Institute says that collision coverage costs about $290 per year while comprehensive coverage costs about $134 per year. However, this could be an underestimation. It's not clear what year this data is from or what vehicle make and model this is based on. Other sources place estimates of collision and comprehensive costs much higher -- in some cases thousands of dollars per year.

Premiums are just one of the costs associated with collision and comprehensive coverage. Drivers will also have to pay a deductible to file one of these claims. That could cost anywhere from $100 to $2,000.

If the policyholder's vehicle is only worth $1,000 and their collision and comprehensive deductible is $1,000 and they have a premium on top of that, it doesn't make sense for them to keep this coverage. They're better off saving for repairs or a new vehicle in an emergency fund in case of an accident.

Drivers can estimate the current value of their vehicle using a site like Kelley Blue Book. Compare this value to the cost of maintaining collision and comprehensive coverage. If the value of the car isn't substantially higher, it might be worth dropping that coverage to save some money on premiums.

One final thing to note: Lenders and lessors might require drivers to have collision and comprehensive coverage on their vehicle if they have a lease or loan. This protects the lender or lessor's investment. In this case, drivers might have to try other tactics to save money, like shopping around with several providers to see which offers the best cheap car insurance.

Even if drivers own their vehicles free and clear, it might be worth comparing rates from several providers with and without collision and comprehensive coverage to see which offers the biggest bang for your buck.