CNBC Select wants you to do math about your car insurance. Bold. Most of you can't do math about your own checking account.
The equation is simple. Compare the annual cost of comprehensive and collision coverage to what your car is worth. If the premiums eat up a big chunk of the car's value, you may be paying more to protect it than it would ever pay out. The usual rule of thumb floats around 10 percent. Your deductible matters too, because the insurer pays only what's left after you cover it.
Read that again. The insurance company is not your friend. It is a spreadsheet with a mascot.
Retail traders will love this. You spent four years holding a meme stock down 80 percent because selling would "make the loss real." Now an article tells you to drop coverage on a depreciating asset, and you'll cling to it like a limited partner at a fund that already stopped returning calls.
Consider the math on a car worth $3,000. You pay $900 a year to cover it. You carry a $1,000 deductible. Best case, you collect $2,000 after a total loss. You are paying a premium to get a rebate on your own mistake.
Here is where the technical analysis comes in. Your car's chart is a straight line down. No support. No double bottom. No bounce. A 2009 Corolla does not mean revert. It just becomes a 2010 Corolla with a smell.
The article is correct that you should keep coverage if you have a loan. Your lender requires it. That's the one relationship in your financial life where someone cares if the car survives. Enjoy it.
Also, if you couldn't afford to replace the car out of pocket, dropping coverage is a bad idea. This is the part the day traders will skip, right before they put their rent on weekly options.
Do the equation. Drop the coverage. Then drive like your savings account is in the back seat, because it is.
Photo by Compagnons on Unsplash
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