What Is the 100,000-Mile Rule in Car Insurance?

Car insurance companies spend a lot of time explaining the different types of car insurance and why you need all that coverage. They spend decidedly less time explaining which types you don't need or how to avoid overpaying for excess coverage. That's where the 100,000-mile rule in car insurance comes in.

The general rule isn't perfect, but it's a useful starting point to help you figure out how much car insurance you need and what types of coverage you should skip.

The idea behind the rule is to avoid paying for additional coverage that, because of your car's market value, you can't really benefit from anyway. While not having enough coverage is definitely a risk worth avoiding, it's just as important to avoid paying for more coverage than you need or more coverage than you can use.

From just $107.88 $24.99 for Kiplinger Personal Finance

Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues

CLICK FOR FREE ISSUE

Sign up for Kiplinger’s Free Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Sign up

Not only are the higher premiums that come with that unnecessary coverage a waste of money, but that's money that would be better put in a high-yield savings account or CD to cover your out-of-pocket costs in a car accident or maybe save for your next car if your current ride is getting ready to retire.

To keep your car insurance premiums from soaring, here's a breakdown of the 100,000-mile rule and some tips for figuring out the right amount of coverage for your car.

What is the 100,000-mile rule in car insurance?

The 100,000-mile rule refers to the general recommendation to drop collision and comprehensive coverage on cars once they've passed the 100,000-mile mark. By dropping the extra coverage, you stand to save hundreds on car insurance while theoretically not exposing yourself to much more risk.

The logic behind the rule is that as a car gets older or racks up more mileage, its market value goes down. Insurance companies won't pay more for a claim than the current market value of your car, and once you have an accident in which the cost of repairs is higher than the market value, your car will be declared totaled.

Even if the repair is an easy enough fix and you still want to drive your car after it's been totaled, you can only get liability coverage for the car going forward, not collision or comprehensive coverage.

Because of those limitations, there's a point at which the cost of coverage just isn't really worth the low maximum payout. While there are a lot of factors that go into the market value of a car, the 100,000-mile mark is the tipping point at which you want to start re-evaluating your coverage.

What coverage do you lose if you drop collision and comprehensive insurance?

The 100,000-mile rule refers specifically to dropping collision insurance and comprehensive insurance. No matter what the mileage on your car is, you'll need liability insurance at a minimum.

But collision and comprehensive insurance are optional forms of coverage used to pay for damages to your car in an accident in which you're at fault (in the case of collision insurance) or, in the case of comprehensive insurance, when your car is damaged in other ways, such as a hailstorm or a tree falling on it.

Even if you don't have these optional types of insurance, your car would still be covered in accidents where you're not at fault by the liability insurance of the other driver. Canceling this extra coverage doesn't leave you completely unprotected, and you'd still be able to legally drive your car.

How to figure out the right time to drop collision and comprehensive coverage

It would be convenient if the 100,000-mile rule were a hard, universal guideline that applied to every car in every situation. Unfortunately, there are a lot of variables beyond mileage that will determine the right time to drop down to minimum coverage.

Instead of immediately dropping the extra coverage the second you cross the 100,000-mile mark, use that milestone to answer these five questions:

1. Are you leasing the car?

If you're leasing, the 100,000-mile rule probably doesn't apply. Many leasing agents require drivers to keep full coverage, which typically includes collision and comprehensive coverage.

2. Are you still paying off the car loan?

Like leasing agents, some lenders might require you to maintain full coverage until your loan is paid off. If you're still making payments, check with your lender about its insurance requirements before you start doing the math on whether the extra coverage is still worth it.

3. What is the current market value of your car?

You can use tools from sites such as Carfax or Kelley Blue Book (KBB) to estimate the current market value of your car. Remember, this number is the estimate of what you could get for it if you were to sell your used car in its current condition to a driver living in your same town.

Car insurance companies have their own methods of calculating market value, so the Carfax or KBB estimate you get might not match the one your insurer comes up with after you file a claim. As long as you're honest about the current condition of the car, the estimate from these websites is typically close enough for the purpose of deciding whether it's worth keeping collision and comprehensive coverage.

4. How much would it cost to repair the car after an accident?

This one is a little harder to calculate because you don't know exactly what repairs would be needed in this hypothetical accident, and repair costs vary widely across different makes and models.

As a starting point, use the car repair costs estimate tool from AAA or the Napa Auto Care Repair Estimator to get a ballpark figure on various types of repairs. Alternatively, you can contact local collision repair centers to ask about average costs.

Compare these repair costs to your current market value. If many of them are close to or higher than your car's estimated value, it might be a good time to drop collision and comprehensive coverage because the odds of your car being declared totaled are high.

5. What's your plan in the event of an at-fault accident?

While canceling that extra coverage might make sense on paper, the decision ultimately comes down to how you would handle an at-fault accident or other unexpected event damaging your car.

Even on older cars, the few thousand you would get if it were declared totaled could be enough for a down payment on a new car if you were to keep your collision and comprehensive coverage.

If you have enough in savings right now to cover a down payment if you needed to, that might not be worth the higher premiums – especially when the money you save by dropping coverage could further boost your savings.

But if you wouldn't be able to pull together a down payment right now, or doing so would force you to tap into other funds such as retirement savings or your home equity, it might be worth the extra premium payments just to know that, in the worst-case scenario, you'd get the cash you need to buy a new car.

Still, check the market value of your car at least once a year. If it reaches the point when the market value is close to your deductible, it’s probably time to drop the optional coverage, regardless of any other factors.

Related content

• Is Your Car Model Driving Up Your Insurance Premium?
• My Teen Crashed His Car, and Now Our Insurance Has Tripled. What Now?
• Your End of Year Insurance Coverage Review Checklist
• Luxury, Exotic and Classic Car Insurance: How To Get the Best Coverage