Last week, we discussed factors that could influence when to drop collision insurance. Today, we’re going to take a look at some calculations you can use to determine if collision insurance is worth the investment for your individual circumstances.
How to Decide When to Drop Collision Coverage
Look up your vehicle’s current value using online sources like autotrader.com, kbb.com, and other sites for buying cars to search for your car’s make and model. Additionally, you can compare similar make/model vehicles to your car, to add to its estimated current value.
Determine what your current rate for collision coverage totals, and get quotes from several insurance providers for collision coverage. This will allow you to calculate what you would be paying annually for collision protection.
Once you have that annual collision expense, multiply it by three or five, to see how much you’d be paying over the next 3-5 years. If the number you get is more than what your car is worth, collision coverage is probably not worth the money.
Instead of paying for collision coverage, you should set aside the amount of money you would have been paying your insurance provider into a car emergency fund. This will give you a financial cushion to fall back on if you get into an accident and need to have your car repaired.
If you currently have enough money in your savings account to cover the full value of your car, it might be worth dropping collision coverage, and save the money you’d be spending while you drive without having an accident. If you do wind up damaging your own car, you’ll be able to pay for it out-of-pocket without taking much of a financial hit. If the damage you incur is minimal, or just cosmetic, and your car isn’t worth much, it’s usually worth it to just live with the scratch or crack than pay to have it fixed.
Ultimately, there are a lot of factors to consider when you weigh your options to decide whether or not to keep collision coverage on your auto insurance policy. If you’re not entirely sure that you’d be able to pay for auto repairs on the spot without being really set back financially, or that you’d be able to go a bit of time before replacing your car until you saved up for it, you should probably bite the bullet and keep your collision coverage.