When Should I Drop Collision On My Auto Insurance
Car insurance is one of the bigger monthly expenses most households have. You could be paying several hundred dollars a month for this type of insurance if you have multiple vehicles, a couple tickets or even an accident on your record, and a teen driver or two. Since it is such a large part of your monthly budget, it makes sense to look for ways to lower the cost of your auto insurance while retaining the coverages you really need.
One type of coverage that it is worth taking a closer look at is collision insurance. Collision covers damage to your vehicle that is caused by another vehicle or object. This coverage is paid out regardless of who is at fault for the accident. Collision coverage may or may not be required, depending on your situation.
States do not require drivers to carry collision insurance, because this is coverage for your own vehicle and not carrying it does not expose others on the road to potential losses. If you have a loan on the vehicle, however, then your lender will almost certainly require it. Your lender wants to protect their interest by ensuring that you will be able to pay off the balance of your loan if your car ever gets totaled.
When you take out a vehicle loan, the lender will require you to list them as a loss payee on your auto insurance policy. This allows them to receive correspondence from your insurer, including notifications of changes to your coverages. If you were to drop collision insurance before your car loan is paid off, your lender would be notified, and they would purchase collision coverage for you, usually at a much higher price than you would if you purchased it on your own.
When is the Right Time to Drop Collision Coverage: If you have paid off your car loan and you own the vehicle free and clear then you have the option to drop collision insurance. In this case, you will need to examine the pros and cons of keeping this coverage. The two primary factors you will want to look at are:
- The cost of collision insurance; and
- The value of your vehicle.
You can find out how much your collision coverage costs by looking at your insurance policy declarations page, or by asking your agent. It is easiest to break this figure down based on the way you make payments. For example, if you pay your car insurance monthly, find out the monthly cost of collision insurance.
You can find out how much your car is worth by checking independent valuation websites such as Kelly Blue Book or the National Automobile Dealers Association (NADA). If your car is four or five years older or more, you may be surprised at how much its value has depreciated. Once you have a good estimate of your vehicle value, you will know how much you could expect to be paid in the event that your car is totaled.
In determining whether collision insurance is still worth it, a good rule of thumb is that if the cost of this coverage every six months is 25% or more of the value of your car, it is probably time to drop it. If this is the case, it would mean that you could take the money you save from not having collision coverage and buy a comparable car in two years. Now, what are the chances that your car will be totaled during that time?
Not Sure About Collision Coverage? Speak with an Independent Agent for More Details
Collision insurance is a coverage that is necessary and often required when you have a new vehicle, but as your vehicle ages, you need to closely examine whether or not it is worth keeping. If you are not sure which option is right for you, it is best to speak with an independent insurance agent.
Your local independent agent can sit down with you and go over not only collision, but all of your coverages to help determine exactly what you need. And because they are not captive to any one particular carrier, they can also shop several carriers for you and find the one that provides the right coverages at the best price.