Collision coverage is an option in your insurance policy that helps protect your wallet when your car is involved in an accident with another driver or an object.
In many situations, your collision coverage may help repair or replace your car; restoring it to its pre-accident condition. There are many reasons to keep collision coverage on your car, but there are also times it may make sense to remove this coverage from your policy.
Should you remove collision coverage from your insurance policy?
There are some different reasons why you may want to remove collision coverage from your insurance policy.
One of the common reasons that collision coverage is removed is that a loan or lease on your car may be paid off. During a period where you have a loan or lease on your car, the financing institution may require physical damage protection on your insurance policy; this requirement ends when your vehicle is paid off.
If your vehicle is older, then you may want to take your car’s value into consideration. One of the ways to determine if collision coverage is financially reasonable is to take 10% of your car’s value, add in your deductible, and determine if your collision coverage costs more than this amount.
If you are paying over this amount annually for the collision coverage option, then it may make sense to remove this coverage from your policy.
Along with calculating your car’s value, age is the other determining factor. Your car depreciates over time, which means that your insurance policy coverage will end up covering a smaller amount each year as your vehicle’s value declines.
If you have an older car, and you have managed to save up an emergency fund in case of an auto accident, then it may be time to take collision coverage off your insurance policy.
For instance, if it’s manageable to save up ten times the amount of money you pay for your collision coverage each year, then you may not need collision coverage to help you replace or repair your vehicle due to an accident.
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Should you keep collision coverage on your insurance policy?
When you have an older car, there are many reasons to consider removing collision coverage from your insurance policy. However, there may be some things to consider when deciding to keep your collision coverage active or not.
For instance, if your older car still carries a loan or lease on it, then there may be a requirement that you carry collision coverage; typically until the loan or lease is paid off. In these situations, the lending institution is often listed as an interested party on your insurance policy.
This means that if you fail to maintain coverage, they may be made aware.
Additionally, there are state required insurance minimums that almost every state requires drivers to carry. The required insurance coverage for most states is liability coverage; coverage that protects others from damages or injuries that you may cause.
In most situations, collision coverage is not a state required coverage, meaning that you will be responsible for any damages to your vehicle if you do not carry collision coverage.
Are there risks to remove collision coverage from your insurance policy?
When you drop collision coverage, any damages that would fall under this coverage are now your responsibility. This means that instead of paying only the listed deductible in the event of an accident, you are now paying for the entire amount of the loss.
If you only have one older vehicle, and your car is involved in an accident, it may be difficult to come up with a down payment if your car is totaled. Collision coverage may help provide some replacement cost coverage in the event your car is totaled, even if it is an older car.
Additionally, if you have to rent a vehicle after an accident, collision coverage may help you avoid additional rental costs.
Many rental agencies require physical damage coverage on your insurance policy for you to opt out of their insurance coverage options. If you do not carry collision coverage, you may be required to buy insurance coverage from the rental agency, or you may have to accept full financial responsibility for any physical damages.
Finally, uninsured or underinsured motorists may be a risk to your older car if you do not carry collision coverage.
If you do not already carry a coverage option that protects you from these drivers, then your collision coverage may help you repair or replace your vehicle if you’re involved in an accident with an uninsured or underinsured motorist.
Figuring out the right time to remove collision coverage from your policy is not always easy. The age of your vehicle or your vehicle’s value may be a factor when trying to determine if you should keep collision coverage in place.
Before you make any changes to your policy, or before you buy a policy without collision coverage, make sure you speak to the insurance provider to understand how this will affect you in the event of a claim.
Every insurance provider may review different factors when pricing out collision coverage, such as your insurance history and your driving record.
If the cost of collision coverage is a factor for you, then you may want to consider getting quotes for this coverage from other providers before you drop collision coverage from your insurance policy.