Do I Need Collision Coverage on My Insurance Policy?

Selecting your insurance coverage is a very important part of setting up and purchasing an auto insurance policy. Deciding whether or not you should purchase collision coverage on your vehicle should be given careful consideration. Collision coverage protects your vehicle against physical damage losses involving other vehicles, potholes, or other inanimate objects such as a mailbox, garage, or pole.

State Laws Do Not Require Collision Coverage

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State car insurance laws vary from state to state. No state requires drivers to carry collision coverage as part of their minimum requirements. Collision coverage is optional according to state laws.

What to Do If You Have a Vehicular Loan

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The one-time collision coverage is required is when you have a loan on the vehicle. The lender wants to protect its interest and they do so by requiring collision coverage on the vehicle at all times. If you choose not to purchase collision coverage, the lender will purchase collision coverage for you and add it to your loan balance. Having the lender purchase the coverage for you is usually more expensive than purchasing it on your own.

How Your Lender Knows If You Have Coverage

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Lenders get correspondence from insurance companies if they are listed as a loss payee on a particular vehicle on a car insurance policy. The correspondence consists of verification of coverage and an active policy. If you were to remove coverage or cancel the policy on the covered vehicle, your insurance company will notify the loss payee also known as the lender.

Calculate Both the Cost of the Vehicle and the Cost of Collision Coverage

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If you do not have a loan on your vehicle, the choice of collision coverage or no collision coverage is totally up to you. You have to weigh your circumstances to determine if you could cover the loss of your vehicle if it were in a collision on your own, or if you would need help from a third party such as an insurance company.

Calculate the value of your vehicle by using Kelley Blue Book or N.A.D.A. As your vehicle ages, the price depreciates. Many people are surprised to see the actual value of their vehicle. It is common for people to think their vehicle is worth more than its true value. Knowing what your vehicle is worth will help you gauge if the cost of collision coverage is worth the potential payout.

Ask your insurance agent or check your declarations page to determine the cost of collision coverage. It is easier if you break it down how you make your payments. To find out your monthly savings if you pay monthly, or find out your six-month savings if you pay semi-annually.

It always comes down to your comfort level and your bank account. If you live paycheck to paycheck and can afford the cost of car insurance, it might be worth it to keep collision coverage. A good rule of thumb is if the cost of collision coverage is 25 percent of your vehicles value every six months, it is probably time to stop paying for collision coverage. Just think in two years time you have saved enough money to cover the cost of a total loss of your vehicle.

Evaluate Your Risk of Being in an Accident

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What are your chances of being in a collision? Do you drive your car minimally? Have you been driving ten plus years without ever being in an accident? Your driving history is a good indicator of the likelihood of a future claim. If your risk is low, dropping collision coverage could be a great way to save some extra cash.

Another thing to consider is that in most states, you can get your vehicle repaired if the accident is not your fault and you know who caused it by filing a claim against the at-fault vehicle's policy. Collision coverage only applies when you are at fault in the accident or you were involved in a hit and run accident. It is one more reason why if you are a good alert driver, you may not need collision coverage. ​Michigan drivers have a different set of rules to consider and probably will not want to make the decision of dropping collision coverage lightly.​

Purchasing collision coverage is a personal decision which nobody should make for you. Do not leave it up to your insurance agent, or keep collision coverage because your Uncle John swears by it. Being well informed can save you lots of money when it comes to car insurance. Do a little research and determine what the best coverage is for you and your family.