Auto Insurance: Removing Collision Coverage

Collision insurance is a type of coverage that helps you pay for vehicle repairs or replacements if you crash into another vehicle or an inanimate object. While it is not required by law, lenders and leasing companies usually require you to carry collision coverage to protect their assets. If you own your car outright, you can choose to drop collision coverage, especially if your car is older and not worth much. However, if you can't afford to pay for repairs or a new car, it may be a good idea to keep collision coverage. Ultimately, you need to weigh the pros and cons and consider your individual circumstances when deciding whether to drop collision insurance.

When to drop collision insurance

Collision insurance is an optional supplemental cover that you can choose to take out or not. It is not required by law in any US state. However, if you lease a vehicle, you may be obliged to take out this level of protection so that the lender can protect their assets.

• Your vehicle's value is low: If your car’s value has fallen below a few thousand dollars, it might be time to consider dropping collision coverage. This is especially true if you have a high deductible. At this point, an insurance payout may not merit the annual premiums.
• You can cover the cost of repairs yourself: Consider the value of your vehicle, the cost of repairs, and your available funds. If you have enough in savings to cover potential repairs, you may want to drop collision coverage.
• You aren't driving your car: Collision coverage is not necessary if your car is garaged or kept in storage. If your vehicle isn't currently being driven, you only need comprehensive coverage to protect it against theft, vandalism, fire, and weather-related issues.

On the other hand, you may want to keep collision coverage if:

• You can't afford expensive repairs: Collision coverage may increase your car insurance premiums, but the difference in cost may pale in comparison to what you’d need to pay should your vehicle be damaged in a collision.
• You rent a car when you travel: Car rental companies typically offer a collision damage waiver that releases you from financial responsibility if the vehicle is damaged. If you are accustomed to opting out of this additional protection because you rely on your car insurance to cover you, consider keeping collision coverage or buying the waiver each time you rent.

When deciding whether to drop collision insurance, it's important to carefully weigh your options and make a list of pros and cons. Consider your vehicle's age and value, your financial situation, and your driving habits.

When is collision insurance worth it?

Collision insurance is an optional coverage that is not required by law. However, it is usually required by lenders if you are leasing a vehicle or still paying off a loan. It covers the cost of repairing or replacing your car if it collides with another vehicle or object, such as a tree or guardrail, or if it rolls over. It also covers hit-and-runs and damage caused by uninsured or underinsured drivers.

So, when is collision insurance worth it? Here are some factors to consider:

• The value of your car: Collision insurance might be worth it if you have an expensive car that would be costly to repair or replace. On the other hand, if your car is old and has a low market value, collision coverage might not be worth it since it will never pay out more than the car's value.
• Your ability to pay for repairs: If you can afford to pay for repairs or replace your car out of pocket, you might not need collision insurance. However, if you cannot afford to cover these costs, collision insurance can provide peace of mind and financial protection.
• Your driving experience and history: If you are a new or inexperienced driver, or if you have a history of at-fault accidents, collision insurance might be a good idea.
• The cost of premiums vs. the value of your car: Some experts suggest that you can drop collision insurance when the annual premium, plus the deductible, cost more than 10% of the vehicle's current value. This guideline aims to prevent drivers from paying more for insurance over time than they would receive from filing a claim.
• Your financial situation: If you cannot afford to replace your vehicle and need it for transportation, dropping collision insurance could leave you stranded or in debt if an accident occurs.
• The requirements of your lender or leasing agent: If you are still paying off a car loan or leasing your vehicle, your lender or leasing agent will likely require you to maintain collision coverage until the loan is paid off or the lease ends.
• The likelihood of accidents: While you may consider yourself a safe driver, accidents can still happen due to the actions of other drivers or unexpected events. Collision insurance can provide protection in these situations.
• The cost of repairs vs. the value of your car: If the cost of repairs is consistently exceeding the value of your car, it might be worth considering dropping collision coverage.

When is collision insurance not worth it?

Collision insurance is not worth it in several scenarios. Firstly, if your vehicle is paid off and its value is less than a few thousand dollars, collision coverage may not be worth carrying, especially if your policy has a high deductible. In this case, the potential insurance payout may be lower than the price of the coverage. Additionally, if your vehicle is not being driven and is kept in storage or garaged, collision coverage is unnecessary as the risks of collision are minimal. Another instance where collision insurance may not be necessary is if your vehicle is insured on another policy, such as a family member's existing policy that includes collision coverage.

Furthermore, if you are a safe driver with a good driving record and are not likely to cause an accident, collision insurance may be unnecessary. This is especially true if your car is worth less than the minimum deductible amount or is inexpensive to repair. In such cases, you may be better off claiming on the other driver's insurance if they are at fault in an accident.

Moreover, if your collision insurance premiums cost more than your car's current value, it may be prudent to drop the coverage. This is a general guideline, and individual circumstances should also be considered. For example, if you cannot afford to replace your vehicle, dropping collision insurance could leave you stranded or in debt in the event of an accident.

Lastly, if you have an older vehicle with high mileage, collision insurance may not be worth it. As vehicles depreciate over time, the maximum payout from collision insurance may be very low compared to the insurance cost. Therefore, it is essential to assess the value of your vehicle from the insurer's perspective when deciding whether to drop collision coverage.

When do you need collision insurance?

Collision insurance is an optional coverage that pays to repair or replace your car after a crash. It is not required by law, but it is generally required by lenders or leasing companies if you finance or lease your car. Collision coverage is also necessary if you own an expensive vehicle or cannot afford repairs after a collision.

• When Financing or Leasing a Car: If you are financing or leasing your car, your lender or leasing company will likely require you to carry collision insurance. This protects their investment in the vehicle.
• Expensive Vehicles: If you own a high-value car, collision insurance can provide valuable protection. Repairs for luxury or sports cars can be costly, and collision insurance can help cover those expenses.
• Inability to Pay for Repairs: If you cannot afford to pay for repairs or replace your vehicle after a collision, collision insurance can provide financial protection. It ensures that you won't be left stranded or in debt due to unexpected collision costs.
• Areas with Uninsured Drivers: If you live in a state with a high percentage of uninsured motorists, collision insurance can offer peace of mind. It covers damages caused by uninsured or underinsured drivers, so you won't have to worry about paying for repairs yourself.
• Teen Drivers: If you have a teenager who is learning to drive, collision insurance can provide extra protection. Teen drivers have a higher risk of being involved in accidents, and collision coverage can help cover the costs of any damages.
• History of Accidents: If you have a history of at-fault accidents, collision insurance can help protect you financially. It covers the cost of repairs to your vehicle, regardless of who is at fault.

In summary, collision insurance is essential when it helps protect you from financial strain due to collision repairs or vehicle replacement. It is particularly useful if you are still paying off your car, own an expensive vehicle, or are concerned about the costs associated with accidents. By assessing your individual circumstances, you can decide if collision insurance is a worthwhile investment for your peace of mind and financial security.

How to save on your premium

Collision insurance is not mandatory by law, but it is often required by lenders if you are leasing a vehicle or paying off a car loan. It is a type of insurance that covers the cost of repairs or replacements if you are in a crash with another vehicle or an inanimate object.

If you decide to keep collision insurance, you will likely need to pay a higher premium. Here are some ways to save on your insurance premium:

Raise your deductible

The deductible is the amount you pay out of pocket before your insurance policy kicks in. Generally, the higher your deductible, the lower your monthly premium.

Change your coverage and seek out discounts

Getting quotes from multiple insurers can help you find lower premiums by comparison shopping. Different insurance companies will offer different rates for the same vehicle.

Bundle your auto and home insurance

If you carry homeowners' insurance, you may be able to get a discount by bundling it with your car insurance. Most insurers offer a discount for this, which can help you save money in the long run.

Improve your credit score

Insurers consider your credit score when setting premiums. Drivers with good to excellent credit are offered significantly lower premiums than those with poor credit scores. Improving your credit score may take time but can result in significant savings on your car insurance costs.

Take a defensive driving course

Safe drivers usually pay lower car insurance premiums. Some insurance companies offer a discount if you voluntarily attend a defensive driving course. Check which traffic schools are approved by your insurance company and take a course offered by one of those schools to get the discount.

Pay upfront and in full

Many insurance companies offer discounts if you pay upfront and in full. While no down payment car insurance will give you the lowest upfront payment, paying in full can save you money in the long run.

Frequently asked questions