When to Drop Collision Insurance

In our last post, we discussed the definition of collision insurance, but there’s more to know about collision insurance than just what the term means. There are a lot of factors to consider when you’re deciding on what kind of coverage you need when you take out an auto insurance policy, especially when it comes to collision coverage. Sometimes collision coverage isn’t worth the expense, but you need to consider every angle before deciding if that applies to you.

When you add collision coverage to your auto insurance policy, your monthly premium will increase. However, the increase isn’t a standard fee—the amount that it will increase varies a considerable amount depending on several factors that are specific to the driver on the policy. These factors include the driver’s highest level of education completed, income, age, gender, credit score, driving history, driving habits, vehicle make/model, and residential location. The best way to compare your options is to get auto insurance quotes from multiple insurance providers—which is easy to do at InsuranceQuoteOnline.com, the location for all of your free online insurance quotes!

Many insurance providers will offer different discount deals if you buy multiple types of coverage, such as comprehensive, underinsured motorist, rental, and personal injury protection, combined with your general auto insurance policy. They may also discount your insurance rates if you get homeowner’s, motorcycle, boat, RV, or other insurance policies through the same provider. If you’re on a budget, though, you should only purchase the coverage you need, instead of opting for a “spend more to save more” package deal. Choosing not to get certain types of coverage, collision especially, needs to be thoroughly thought out, because if you wreck your car you may potentially be stuck with a big out-of-pocket expense.

When to Drop Collision Insurance

Here are some factors to consider when you’re deciding whether or not to drop your collision coverage:

  • The Value of Your Vehicle
    • If your car isn’t worth more than a few thousand dollars, you may want to pay for any damage it incurs out-of-pocket, because the amount you pay for collision coverage may exceed the actual value of your car.
    • If your car is worth more than $5,000, it’s a good idea to have collision coverage, because the amount you pay annually for coverage will be less than the cost of repairing any damage that expensive.
    • If you are financing your car, your lender will probably require you to have collision coverage. However, this isn’t always the case, and it depends on your state and your lender, so it’s important to check the specifics that apply to you. Keep in mind that if you don’t have collision insurance protection, if you damage or total your car, you’ll be stuck paying the full balance of your loan. Ouch!
    • In addition to considering the current value of your car, take the amount that collision coverage will cost into account. Calculate how much you’ll spend on collision insurance over the next four or five years, and see if it’ll cost you more than what your car is worth now (or what it’ll be worth in five years).
  • Depreciation of Your Car’s Value
    • If your car is worth $10,000 right now, in five years it’ll be worth roughly $7,000-3,000 less, depending on the specific make/model, and the wear and tear you put on it. Even if it’s worth having collision coverage now, you may consider dropping it further down the line if your car depreciates below an amount that’s worth insuring.
  • Your Accident Risk
    • If you drive fairly infrequently, or drive less than a few thousand miles every year, your accident risk is much lower than that of someone who drives often. In this case, having collision insurance may not be worth it, because the likelihood you’ll have to cash in on it is minimal.
    • If you drive every day, drive in high-traffic areas, and/or park your car on busy streets, you may be at a higher risk of accident than average drivers. If this applies to you, it’s probably worth having collision protection, because you run a decent risk of getting into some kind of collision.

In our next post, we’ll go through some basic calculations that you can do to decide if collision coverage is right for you.

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