Removing Collision Coverage From My Auto Insurance: Is It Worth It?

Auto insurance is one of those things no one enjoys buying. It’s expensive and no fun, but you will be sorry if you don’t have it. Like many vehicle owners, you may be confused about what types of auto insurance coverage that you need. You probably purchased collision coverage when you first bought your car, but five years down the line, do you need that much protection? Before you remove that coverage from your policy, you need to weigh the savings against the risk. Remember, life without a vehicle can be difficult indeed.

The Basics

When you purchase an automobile insurance policy, you have a number of options in both coverage types and amounts. For instance, you will need to decide if you want comprehensive insurance or collision insurance. Comprehensive insurance covers damage from both collisions and other risks such as weather damage, theft and even riots.

Collision insurance only covers actual collisions with other vehicles or inanimate objects like your garage door or the neighbor’s mailbox. Carrying only collision protection obviously costs less than going with comprehensive coverage. At some point, you may consider dropping the collision coverage and sticking with the bare minimum: state-mandated liability coverage.

If you own your car outright, carrying collision coverage is up to you. The state does not require it. However, if you owe money on your vehicle, your lender will likely require full coverage so that their investment is protected. If you don’t buy the coverage, your bank will and slap the premium amount onto your loan balance. And they don’t buy cheap coverage. You will probably pay far less if you seek out your own insurance.

The Pros

Collision coverage is actually pretty inexpensive if you have a solid driving record. It’s cheaper than comprehensive coverage and may only cost you several hundred dollars a year, depending on your vehicle’s value. You will pay significantly more if you’ve had several driving mishaps. When you are in a collision, the coverage should pay for repairs or the replacement value of your car minus your deductible. If you rely on your car, as many Americans do, this coverage helps give you peace of mind. When you collide with someone at an intersection or while out on the open road, you should be financially okay. Even if you don’t get the full replacement value when you total the car, the insurance payout should give you enough to get another vehicle. You will at least have options.

The Cons

If you have never been in an accident or at least not in the last decade or so, you may feel that paying collision insurance is a waste of money. The average driver is in around four vehicle accidents during their lifetime, or one every 18 years. Of course, some drivers are at lower risk than others. Those that follow the traffic laws, don’t drive much at night and live in low-population centers are less likely to be in these accidents. If you are one of these people, you may be justified in dropping your collision insurance.

For all drivers, collision insurance becomes less effective as their car ages. You don’t want to pay hundreds of dollars a year to protect a $500 car. But you may decide that your $5000 car isn’t worth the coverage as well. Only you can decide if the risk is worth it.

Determining Factors

Before you drop your coverage, you need to find out how much your car is actually worth. Take a look at the Kelley Blue book or ask your car dealer to give you an estimate. Then find out exactly what you are paying for collision coverage. It should be on your declarations page, but you can always contact your agent to find out. Once you understand the finances involved, you’ll be prepared to make a decision.

If you cannot afford to replace your car at its current value, you should continue to pay for collision coverage if at all possible. Otherwise, you could be left without transportation after an accident. You may not like the idea of paying that much for a low-value car, but the risk of going without is not worth it.

If you have enough money available to cover the current value of your car, then you should be able to drop the collision coverage. To be safe, you should put at least a portion of your policy savings aside to aid in your next car purchase. If your current car is totaled, you may well want to buy a newer model.

When it comes to collision insurance, you have to measure risk vs. savings. For a newer car, you really should be carrying full coverage. If you cannot afford comprehensive insurance, you need the minimum of collision and liability. However, your ten-year-old car with 200,000 miles on it may only need liability coverage. When you drop your collision coverage, you can put the savings in the bank in preparation of buying your next car. Before making a decision, do discuss it with a trusted financial advisor.

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