Auditing your add-ons: which endorsements to keep, drop or add

An add-on earns its cost when it covers a loss you could not comfortably absorb, covers something you do not already have, and still fits the car and loan you have today. Most endorsements fail one of those tests sooner or later, because the car ages, the loan shrinks, or a credit card or auto club already provides the same benefit. The way to find out is a one-hour audit once a year: list each endorsement, price it, compare it with the alternatives, and check the trigger that made it worth buying.

This article gives you that method, with a worked example, a keep-or-drop table by endorsement, the points where a late decision costs you, and the questions to ask your insurer. It does not say which endorsements everyone needs. It explains how to decide for your own policy.

Step 1: Get the list and the price of each item

Start with your declarations page, the summary your insurer issues at each renewal. It lists each coverage, its limit or deductible, and usually its premium. Endorsements may be printed as form numbers or codes next to short names. The guide on how to read your car insurance declarations page shows how to decode them.

Some premiums appear per coverage, others per vehicle, and a few are folded into a package. When the page does not show a price, ask the insurer for a quote with and without the endorsement. Do this for every add-on on every vehicle, because the cost of a rental or roadside endorsement can differ between cars on the same policy.

Record, for each endorsement:

• its name and what it covers in one sentence,
• its annual cost,
• the limit (a daily cap, a percentage, a dollar amount),
• the trigger that justified it (new car, loan, long commute, teenage driver, older car),
• whether another source already provides it.

State Farm's claims page, for example, says rental limits appear on the declarations page under the heading "Limit - Car Rental Expense - Each Day, Each Loss," where the first figure caps the daily charge and the second caps total rental expense for one loss (State Farm rental services). The page's $25 per day and $600 per loss are examples, not your numbers. Your page shows yours.

Step 2: Ask what the add-on pays, in dollars, in the worst case

An endorsement is worth what it pays when the thing it covers happens, times how likely that is, minus what it costs. You will rarely be able to calculate likelihood, so use a simpler test: what is the biggest bill this would pay, and how would you cover that bill without it?

Take three kinds of add-on.

1. Small, predictable costs (a rental car for a few days, a tow). The worst case is a few hundred dollars. An emergency fund absorbs it. You are paying a premium to move a small, survivable cost, so the only real question is whether the price is low enough to be worth the convenience.
2. Large, uncommon losses (a loan balance above the car's value after a total loss). The worst case could be thousands of dollars. This is the classic reason to insure: a loss that is unlikely but would hurt.
3. Quality-of-repair and replacement endorsements (original parts, new car replacement). The worst case is not a catastrophe, but the endorsement changes the outcome you get after a claim, which some drivers value for its own sake.

Insurance as a whole costs more than it pays out on average, because the insurer has expenses and a margin. Buying every add-on for "peace of mind" is a spending choice, not a mistake, but each one should still be a choice you can name a reason for. The Insurance Information Institute (III) frames the same trade-off for older cars: "If your car is worth less than 10 times the premium, purchasing the coverage may not be cost effective" (III, nine ways to lower your auto insurance costs). That sentence is about collision and comprehensive, not endorsements, but the logic transfers: compare the price of protection with the size of the loss it prevents.

Step 3: Look for duplicate coverage

Duplication is the cheapest thing to find. Common overlaps:

Roadside. AAA's club alliance page lists Classic membership towing at 5 miles per tow (up to 40 miles to a AAA Tire and Auto Center), Plus at up to 100 miles per tow, and Premier at up to 100 miles with one household tow up to 200 miles, with 4 service calls a year for Classic and Plus and 5 for Premier (AAA club alliance). If you hold a membership at the tier that suits your driving, an insurer's roadside add-on may cover the same event twice. Check what your insurer's roadside endorsement offers (towing, jump start, fuel delivery, lockout, distance and number of calls) and what your membership offers, then keep the one that fits better, not both. The guide to roadside assistance coverage vs auto club membership explains the options.

Rental. The overlap here is subtler. A credit card's rental benefit helps when you rent a car for a trip. It does not pay for a rental while your own car is in the shop after a covered claim; that is what rental reimbursement is for. A Visa Classic guide to benefits (describing the benefit as of April 2017) confirms the scope: it reimburses theft or collision damage to the rental car, for rentals up to 15 consecutive days in your home country, and does not cover personal liability or damage to other vehicles (Visa Classic Guide to Benefits, hosted by Broadview FCU). Your own card's guide controls. The article on renting a car: do you need the counter's insurance? covers the counter decision.

Gap. If you lease, gap is often built into the lease; III notes that for leased vehicles "gap coverage is usually rolled into your lease payments" (III, auto insurance basics). Check before you buy a second layer. The article on lease gap protection: what is built in and what you still owe explains what the contract provides.

Step 4: Check the trigger against today's facts

Each endorsement was justified by a situation. Re-test it.

Loan and lease payoff or gap

The trigger is owing more than the car is worth. That gap shrinks as you pay down the loan and the car's value stabilizes. Say you financed a car 18 months ago, it is now worth about $22,000, and you still owe $24,500. The shortfall is $2,500 before your deductible, so the coverage is doing real work. Twenty months later, say the car is worth $19,500 and you owe $18,000: there is no gap to cover, and the endorsement protects you from nothing. These figures are invented for illustration. To find your own, get your payoff from the lender and a value from a dealer, a bank or an online guide, then use the gap insurance calculator.

Product design matters too. Progressive's page for its loan/lease payoff coverage says you can add it only when you carry comprehensive and collision, that it pays the difference between the vehicle's value and the loan or lease balance up to 25% of the vehicle's value (the exact limit can vary by state), and that it does not pay extra charges such as excess mileage fees; it also says the coverage is not the same as gap insurance, which may have different requirements and limits (Progressive loan/lease payoff). With a $22,000 car, a 25% cap is $5,500, comfortably above the $2,500 shortfall in the example; with a deeply underwater loan, a cap could bind. See what gap insurance does not pay: deductibles, fees, late payments and dealer gap vs insurer gap: refunds, cancellation and refinancing for the limits and the refund rules when you pay off early.

New car replacement and better car replacement

These endorsements pay for a newer or comparable replacement after a total loss instead of the car's actual cash value, and they are generally limited to cars within a certain age or mileage, and sometimes to the first owner. Eligibility is the key detail, so ask your insurer for its terms in writing. If you added the endorsement to a new car, check the date or mileage at which it expires, because the benefit may end while you are still paying. The comparison in new car replacement, better car and gap: endorsements compared sets out the variations.

Original-parts and similar repair endorsements

The trigger is a newer car where you want original-equipment parts used in repairs. The value depends on the car's age, the part involved, and your state's rules, so it is worth asking whether it applies to the repairs you are most likely to face (bumpers, lights, fenders), and the answer changes as the car ages. See Aftermarket vs OEM parts in insurance repairs for what the choice means for a claim.

Rental and roadside

The trigger is not having a second car or a way to get around. If you have a spare car, a short commute by transit, or an auto club, you may have no trigger left. If you rely on one car for work and a long shop wait would cost you income, the endorsement may be worth keeping and you may want a higher daily limit. The article on rental cars after a claim: reimbursement, loss of use and daily limits explains the limits that apply when a claim is in progress.

Dealer products

If you bought tire-and-wheel, paint-protection or dent plans from the dealer, they are not endorsements on your auto policy, though they overlap with its coverage. Our article on dealer tire, paint and dent plans vs your auto policy compares them with comprehensive and collision.

Collision and comprehensive themselves

These are not endorsements, but they are the largest "optional" costs on most policies and belong in the audit. The III rule of thumb above gives you a first screen. A lender or lessor usually requires both coverages, and dropping them when you have a loan can breach the loan agreement, so the screen applies mainly to cars you own outright. The deductible break-even calculator helps you weigh a higher deductible against a lower premium.

Step 5: Decide, and write down why

Use a table like this for each endorsement.

Every figure in that table is made up for illustration, and none is a price you should expect. What matters is the shape: a decision, a reason and a date to look again.

Removing an add-on mid-term

You can usually ask to drop an endorsement during the term, and the insurer adjusts your premium from the effective date. How the refund is calculated, and whether you can drop only part of a package, depends on the insurer and the state. The article on lowering coverage midterm without creating a gap covers what to avoid, such as lowering coverage in a way that breaks a lender's requirement, and cancelling car insurance mid-term: how your refund is calculated explains the refund methods.

Adding one later

Some endorsements can be added any time, some only at certain points, and many require other coverage first (Progressive's loan/lease payoff, above, requires comprehensive and collision). Rules on timing, vehicle age and mileage differ among insurers, so ask. The cost of a late decision is real: if you wanted new car replacement and the car is past the age limit, you can no longer buy it. Mark the cutoff dates on your calendar when you buy a car.

When to audit

• At every renewal, using the new declarations page and the renewal notice. The article on reading a car insurance renewal notice: rate-change notice rules shows what to check.
• After a major change: a new car, a payoff, a move, a new driver, a different commute. The list in life events that should trigger a call to your car insurer is a good prompt.
• When you buy a membership or card that includes roadside or rental benefits.
• When a car passes an age or mileage threshold in an endorsement's terms.

Questions to ask your insurer

1. What is the exact premium for each endorsement on each vehicle?
2. What does it pay, and what are its limits and exclusions?
3. Does it require me to carry other coverages (comprehensive, collision)?
4. When does it expire, and when could I still add it?
5. If I remove it today, when does the change take effect, and do I get a refund?
6. Will removing it affect a lender's or lessor's requirements?
7. Does it duplicate anything my policy already includes?
8. Are there other discounts or packages that bundle it for less?

Common questions

Should I drop every optional endorsement to save money?

No. Dropping an endorsement that covers a loss you could not absorb saves a few dollars and risks a large bill. Keep the ones that cover a real gap, drop the ones that duplicate something else or cover a small cost you can handle, and review again when your situation changes.

Is roadside assistance on my policy worth it if I have a warranty?

A warranty's roadside benefit lasts only as long as the warranty and may have limits on distance and number of calls. Compare the terms and the expiry date. If one source clearly covers what you need for the period you need it, you may not need the second.

Can my insurer add an endorsement without telling me?

Endorsements change through your agreement and the renewal documents. Read the declarations page and the endorsement list at each renewal, and ask about any item you do not recognize. For disputes, your state insurance department is the place to start.

Is gap insurance from the dealer or from my insurer better?

They are different products with different cost structures, caps and refund rules. Compare the price, what each pays, and whether you can cancel and get a refund when you pay off the loan. The articles linked above cover the comparison.

How do I know if my original-parts endorsement was worth it?

Look at the repairs you have had or are likely to have, and at the price difference between original and aftermarket parts for your car. If you have not had a claim, you cannot know yet; the question is whether you would pay the difference out of pocket.

Key takeaways

• Price every endorsement from your declarations page, and name the trigger that justified it.
• Drop add-ons that duplicate an auto club, a warranty or a credit card benefit, and keep the ones that cover a loss you could not absorb.
• Re-test gap and replacement endorsements as your loan balance, the car's value and its age change.
• Deadlines to add some endorsements are tied to the car's age or mileage, so decide early.
• Review at every renewal and after major life changes, and ask for answers in writing.