Thursday, June 20, 2024

When Should You Drop Collision Coverage On Your Car

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When Should You Drop Full Coverage On Your Car

When to Drop Collision Insurance? : Answers to Insurance Questions

You should drop full coverage on a car, or at least consider it, if:

  • The car is old, or older.
  • The car has a lot of miles on it.
  • The car isnt worth much.
  • You dont drive much.
  • You can afford to pay for repairs out of pocket.
  • You plan to replace your car soon.

The information below explains why you may want to stop full-coverage auto insurance which usually includes liability, collision and comprehensive coverages in these situations.

How Much Should My Collision And Comprehensive Deductibles Be

This is a balancing act. Higher deductibles typically lower your premium, but will increase your out-of-pocket costs if a loss occurs. Ask yourself how much you’re willing and able to pay directly, often on short notice, to potentially save on your premium. If you want to lower the amount you have to pay when a crash occurs, you might want to opt for a lower deductible.

If saving money on your insurance is your motivating factor behind removing your collision and raising your deductible, consider these other car insurance money savings tips.

Do I Need Collision Coverage On An Old Car

Maybe your car loan is finally paid off, and youre no longer required to have full coverage on your car. Or maybe your car is close to a decade old and youre reading a lot of financial advice columns telling you that dropping collision is a great way to make more room in your budget.

The truth is, the question around the right time to drop coverage is not an easy question to answer. It depends on your car and your circumstances. Here are a few questions you can ask yourself.

If you have additional questions or want to talk this through, contact a local ERIE agent. They will be able to walk you through specific auto policy details and make sure yours is tailored specifically to you.

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How Much Does Collision Insurance Cost

The average cost of collision coverage is almost $300 a year, according to the Insurance Information Institute. But insurance companies determine premiums on a case-by-case basis. And the cost can vary significantly based on multiple factors, including:

  • Year, make, and model of the vehicle
  • Repair and replacement costs

When Can I Drop My Full Coverage Car Insurance

Should You Drop Collision Coverage on an Older Vehicle ...

Most states require certain levels of auto insurance at all times, but you can technically drop full coverage whenever you want to. You should decide if full coverage is worth it to you depending on how much risk you would take on without it.

If you have full coverage and are considering dropping it down to more basic coverage, there are some things to check first.

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Why Have Car Insurance Without Comprehensive And Collision

You might be reading this and thinking: isnt that what car insurance is for? To replace my car if its totaled in an accident?

In part, yes. But many drivers have auto insurance policies that do not include comprehensive and collision coverage. The most essential forms of auto insurance pay for damage you cause to other cars and drivers. For example, if you cause a crash and hurt another driver, your car insurance will cover the drivers medical bills. And even if you dont have collision coverage for your own vehicle, your car insurance may cover the cost of repairing the other drivers car.

These essential provisions in auto insurance policies are why most states require drivers to carry car insurance.

Theres a lot of debate as to when it is possible to cancel your collision and comprehensive car insurance. This is an important question because the combination of the two has a major effect on the cost of your car insurance premiums. But that isnt always the right thing to do.

What Is Comprehensive Insurance

A comprehensive cover is a form of motor insurance that covers you for every incident that might involve your vehicle. Some of these may include:

  • Theft.
  • Weather-related accidents, such as hurricanes, flood, or lightning.
  • Earthquakes and other natural disasters.
  • Riots and vandalism.
  • Fallen objects, such as trees.

Comprehensive insurance is optional, and you can legally drive a car you own only with basic protection. Bear in mind, however, that if you lease a car, the lender might require you to take out this type of cover for the period you have finance on it.

Comprehensive cover will pay for the damage to your vehicle, but not to the other vehicles’ repair costs. For that, you will need liability insurance.

There is a common misconception that comprehensive insurance pays for anything that will happen to your car. Despite the name, this is not the case. If you cause damage to another vehicle or injure other road users, that scenario will be covered by the liability insurance policy.

A comprehensive policy is a type of full coverage, and it can include collision insurance, in some cases. Find out more about comprehensive cover.

Most states require a deductible amount for your comprehensive cover, which means that you are required to pay the first $150, $500, or $1000 of the claim amount out of pocket. Most car insurance companies allow you to choose your deductible amount.

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Why You Can Trust Bankrate

Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. Weve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next.

Bankrate follows a strict editorial policy, so you can trust that were putting your interests first. All of our content is authored by highly qualified professionals and reviewed by subject matter experts, who ensure everything we publish is objective, accurate and worthy of your trust.

Our insurance team is composed of agents, data analysts, and customers like you. They focus on the points consumers care about most price, customer service, policy features and savings opportunities so you can feel confident about which provider is right for you.

  • We guide you throughout your search and help you understand your coverage options.
  • We provide up-to-date, reliable market information to help you make confident decisions.
  • We reduce industry jargon so you get the clearest form of information possible.

All providers discussed on our site are vetted based on the value they provide. And we constantly review our criteria to ensure were putting accuracy first.

How Do Insurance Companies Determine A Cars Value

Should I Drop My Comp and Collision Car Insurance Coverage?

If your car is totaled in an accident and you have collision coverage, the insurance company will reimburse you for the actual cash value of the vehicle immediately before the accident. To determine the cars value, insurers look at multiple factors, including the make, model, age, mileage, options, and wear and tear.

Espenschied says most settlements go smoothly, but if youre unhappy with the insurance companys offer, he recommends negotiating. You want to make sure you scrutinize the value based on the features or options you have on that car. And look at retail prices locally.

If you cant buy a similar car in similar condition for what the insurance company is offering, let them know. And explain what similar cars are selling for in your area. To find out your cars fair market value range, check our tool that lets you enter your cars year, make, and model.

The point of negotiating isnt to get a Lamborghini to replace your Ford, its to make you whole again. If youre unable to reach an agreement, let the insurance company know you want a third-party appraisal.

Most personal auto policies have an appraisal clause that says the insurance company is required to hire a third-party appraiser to show how they arrived at , Espenschied said.

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A Quick Refresher On Car Insurance

First, lets take a quick refresher course on car insurance. There are a few main types of car insurance most people carry.

The first is liability, which covers your liability if you cause an accident both from a personal injury to others perspective and a property perspective. It doesnt cover your own injuries or property damage.

You must carry this type of insurance and you cant quit carrying it in most states. I wouldnt suggest you do it even if you could.

The second type of car insurance is comprehensive insurance. This type of insurance is optional and covers you if something happens to your car that isnt caused by another driver.

According to Allstate, their comprehensive car insurance covers the following:

  • Storms and natural disasters like tornadoes, hurricanes and earthquakes
  • Vandalism and theft
  • Broken or shattered windows and windshield
  • Animal damage
  • Falling objects

The last main type of car insurance collision insurance. This pays to repair or replace your car if you damage or destroy your car in an accident. This type of insurance is optional as well, as long as you dont have a car loan that requires it.

Since you cant drop your liability coverage, and you really shouldnt, were going to focus on the comprehensive and collision coverage options.

Dont Want To Watch Heres What I Said In The Video

Welcome to your 2-Minute Money Manager. Im your host, Stacy Johnson, and this question is brought to you by, serving up the best in personal finance news and advice since 1991.

Our question today comes from Don:

I have a 2006 Ford F150 and a 2010 Ford Escape, both paid for. At what time is it financially best to no longer carry collision and comprehensive insurance on these vehicles and simply go to liability?

Lets begin with an explanation of what comp and collision is.

Collision as the name implies covers you if you collide with something or somebody. For example, if you run into a pole or run into another car. In short, collision is what fixes your car when you hit something and youre at fault.

Comprehensive, on the other hand, covers a comprehensive list of things that could damage your car. It covers basically everything that doesnt involve collisions. For example, you hit a deer, a rock hits your windshield or your car gets stolen, vandalized or hail-damaged.

Dons asking when it makes sense to drop comp and collision. Keep in mind that you never, ever should drop liability. Its required both by law and common sense.

If your car isnt paid for, your lender will require you to have comp and collision. Once you own your car outright, you can ask yourself, Should I keep paying for comp and collision?

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When Is Collision Insurance Worth It

Maintaining collision coverage can help protect your finances if youre in a crash by paying for repairs to your vehicle. In general, its a good idea to have collision coverage if:

  • You have a new vehicle. If your car is relatively new, chances are the value of your vehicle is significantly more than what youd pay for your premium and deductible. So, the benefit of maintaining coverage would likely outweigh the cost. And it could save you thousands if youre in an accident.
  • You cant afford to pay for repairs if youre in an accident. Even if your car isnt worth a ton of money, you may want to keep collision coverage if you wouldnt be able to pay for repairs. But keep in mind that if the cost of the damage exceeds a certain percentage of the cars value, the insurance company will declare it a total loss. And theyll reimburse you for the actual cash value of the vehicle , which may not be enough to repair it.
  • Youre driving an older car you cant live without. Even if you drive an old car, it might make sense to keep collision coverage on your aging vehicle if you wouldnt be able to afford to replace it. It may make more financial sense for somebody thats in a paycheck-to-paycheck situation to keep the comprehensive and collision, said John Espenschied, agency owner, Insurance Brokers Group.

Why Is Collision Insurance Important

When Should You Drop Car Collision Coverage ...

Collision insurance can help cover vehicle repair or replacement costs if youre in an accident with another car, get hit by an uninsured driver, roll your vehicle, or collide with a fixed object like a telephone pole or mailbox. But if youre in a crash and dont have collision coverage, the insurance company wont help. Youll have to pay out of pocket to fix your car.

RELATED STORIES: What are the Pros and Cons of Collision Insurance?

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What Collision Insurance Doesnt Cover

Before purchasing a collision insurance policy, you should decide whether you need it and if it suits your needs. So, what does collision auto coverage not cover? Lets list all the things.

  • Bodily injuries acquired due to any event covered by the collision insurance, including your or other peoples medical bills
  • Theft or robbery of the vehicle
  • Any damages caused by falling or flying objects
  • Damages caused by natural disasters like flood, hail, storms, or fire
  • Damages caused by being hit by an animal
  • Vandalized vehicle
  • Damaged vehicle due to lack of maintenance
  • The other drivers injuries or car damage

What collision coverage does not cover is covered by comprehensive coverage. So, its best to decide what you need. However, if you are not sure about it, discuss your options with your policy provider.

Types Of Auto Insurance Coverage

While opting for auto insurance coverage, the insurance company will ask you if you want full coverage or partial coverage. Full coverage is, of course, costly because it involves all the types below.

Collision Coverage: If your car collides with a fence or tree, collision coverage will cover your cars cost up to its actual value. This is an optional feature added to the auto insurance but could be mandatory to purchase if your car is on lease or loan.

Comprehensive: This is also referred to as paying the cars full cost in case of theft or vandalism. Other than collision, whatever damage that your car incurs is covered under comprehensive.

Liability: This includes bodily injury and property damage that you cause to other people. Anyone involved in an accident with you gets injured, their hospital bills will be covered, and if you wreck their fence or property, you will also pay the damages.

Personal injury protection: This type helps pay for your bills and hospital visits if you get into an accident.

As amazing as it sounds to have full coverage on your auto insurance policy, you cant ignore the fact that it will be more expensive. Expensive premiums may shake up your monthly budget, so make sure you opt for a coverage that you can afford.

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How Do You Choose A Deductible For Collision

When you purchase collision coverage, youll have options to choose the amount of your deductible. This is your out-of-pocket cost in the event of a collision loss.

So how does a deductible work? Lets say you opt for a $1,000 deductible. Then you get into an accident, and the damage comes to $2,500. The insurance company would reimburse you for $1,500, while you would be on the hook for the remaining $1,000 .

Many people choose a higher deductible, so they can save money on their premium. A driver taking a $1,000 deductible veComprehensiversus $250 is shouldering more risk. So choosing a deductible may be a balance between your comfort with risk and your budget.

When youre choosing to purchase collision coverage, calculate the year-to-year savings compared to the cost of the deductible. If the three-year savings is less than the cost of the higher deductible, it may be more worth your while to opt for the lower deductible.

But there are certainly other things to consider when choosing a deductible for your collision insurance. Your ability to pay is one. Also, consider the value of your car.

Getting Auto Insurance For Older Cars

How to Drop Collision Car Insurance : Car Insurance

Getting auto insurance for older cars is much easier than you may expect. If you think youre paying too much for coverage on your older vehicle, simply get a fast and easy quote with Clovered to see how much you could save!

Rethink your auto insurance premium with a free quote from the nation’s top companies.

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When To Drop Comprehensive And Collision

If you file a comprehensive or collision claim, your insurer will only pay out up to the fair-market value of your car, minus your deductible. That means smart car insurance shoppers should assess their financial situation, their cars condition, age and value when deciding whether to drop comprehensive and collision.

“If you wouldn’t repair it for a major mechanical issue, you probably shouldn’t insure it for comprehensive and collision,” says Gusner.

She says you should think about dropping comprehensive and collision under these circumstances:

  • When premiums for these two coverages reach 10 percent or more of the potential payoff should you file a claim. The potential payoff is your cars actual cash value minus your deductible. For instance, if your car is worth $4,000 and your deductible is $500, your potential payoff is $3,500. If your annual comp and collision premiums surpass $350, its time to drop them.
  • If your yearly comprehensive and collision premiums plus your deductible add up to more than the value of your car. For example, the III pegs the average annual rate for both coverages at $660, and with a $500 deductible, that totals $1,160. If youre driving a very old car thats in fair condition, with lots of mileage, the value could be below $660.
  • You wouldnt pay to fix your car if it had mechanical issues.

Her general guidelines for coverage as cars grow older:

  • Maintain full coverage with manageable deductibles until your car has been paid off.

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