I think that "rule" is used by insurance agents in order to encourage over-insuring. Who totals their car once per decade? Also why would it be the market value rather than the amount you could collect? If you have $1000 deductible and the market value of your car is $1000, would you pay $100 per year for this coverage?
Assuming the car is worth $4500, with $1000 deductible the most you would collect from a collision would be $3500 and you are paying $354. While this does, perhaps, thus exceed a modified rule of thumb
, in any case this seems to me like too much to pay to avoid a small (at least to me) potential loss of $3500.
The decision should be more based on the impact of a ~$3500 loss, if that would be a minor financial blip then it is not worth insuring against, if it would ruin your life then it may be.