When Should You Drop Collision Coverage on Your Car?

When It Doesn’t Make Financial Sense To Keep Collision Insurance

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When reviewing your car insurance options, you’ll come across many types of coverage. Collision coverage helps pay to repair or replace your vehicle if it’s damaged on the road.

While this protection is required in some situations, it doesn’t always make sense to add collision coverage to your policy. Learn more about how collision coverage works and when you might not need it.

KeyTakeaways

  • Collision coverage is a type of car insurance that covers your vehicle against damage from accidents.
  • It’s often required if you’re financing a vehicle.
  • Once you pay off a vehicle, you may want to remove collision coverage if you don’t drive much, can cover repairs out of pocket, or find it no longer makes financial sense.

What Is Collision Coverage?

Collision coverage is a type of car insurance that can help cover the costs to repair or replace your vehicle if it’s damaged in an accident. Covered collision events typically include:

  • Hitting another vehicle
  • Hitting an object, such as a fence, tree, or light pole
  • Rolling your vehicle over

For example, if you accidentally back into a fire hydrant while parallel parking, collision coverage could cover the costs of repairing the damage.

The amount you can receive after a covered event is limited to your vehicle’s actual cash value (ACV) minus your deductible. Say you get into an accident and total your car, which had an ACV of $22,000. If your collision coverage had a $500 deductible, your insurer would pay you $21,500, which you could use to buy another vehicle.

When To Drop Collision Coverage

While collision coverage can be useful, there are some cases where the benefits don’t quite outweigh the costs.

If you’re financing a vehicle, your lender will generally require you to carry collision and comprehensive coverage until the vehicle is paid off.

Once you own your vehicle free and clear, you’ll have the option to remove collision insurance. You may want to consider dropping this coverage in the following scenarios.

You Don’t Drive Much and Have a Good Record

If your vehicle is paid off, you haven’t had an accident in years, and you don’t drive it often, you may want to save money by dropping collision insurance. The less time you spend on the road, the lower your chances of having a collision. Plus, if you’re a good driver without accidents on your record, your money will likely be better spent elsewhere.

If your vehicle is in storage or not currently running, you’ll definitely want to drop collision coverage.

Your Vehicle’s Value Doesn’t Justify It

Collision coverage is based on the car’s actual cash value, not its replacement cost. As your vehicle ages, its ACV will typically decline. At some point, the cost of collision insurance may begin to approach the cost to replace the car, so it may no longer make financial sense to keep this coverage. Keep an eye on your vehicle’s ACV to decide when it’s no longer worth paying for collision coverage.

You Can Afford To Pay for Repairs

A big benefit of collision insurance is that it covers repairs to your vehicle after a collision so you don’t have to pay them fully out of pocket. However, if your car is older and you can afford any necessary repairs, it may be more cost-effective to drop the coverage.

How To Drop Collision Coverage

Does dropping collision insurance sound like the right choice for your situation? Contact your auto insurance agent and let them know you want to update your policy by removing the collision coverage. Some insurers, like State Farm, let you make this kind of update to your policy online.

If you have more than one vehicle, make sure you’re only removing the coverage from the vehicle that should no longer be covered, not from all vehicles on your policy.

In most cases, you can make adjustments at any time, without waiting for your renewal date. You’ll just pay a prorated premium that reflects the changes.

Frequently Asked Questions (FAQs)

How much is collision insurance?

On average, the annual cost of collision insurance in the U.S. is $377.62, according to data provided by the National Association of Insurance Commissioners. However, the cost of your car insurance will depend on many factors, including your location, age, driving record, claims history, your vehicle’s value, and more. Each insurance company calculates premiums using its own method, so it’s smart to shop around to find the best deal.

What is the difference between comprehensive insurance and collision?

Comprehensive insurance is a type of auto insurance that helps to cover costs if your vehicle is damaged by a covered event that’s not a collision, such as a fire, falling object, vandalism, and some natural disasters.

For example, if your car is parked in front of your house and a tree falls on it, comprehensive coverage could pay for the costs to repair it. On the other hand, collision insurance covers damage due to collisions, such as hitting another object or vehicle.

While both comprehensive and collision auto coverage help to cover the costs of a damaged vehicle, they cover damage from different causes.

What should you do if you’re in a car accident and don’t have collision insurance?

If you get into a car accident, first make sure everyone’s OK, and call 911 if necessary. Next, determine if your vehicle is damaged and if so, determine who is at fault for the accident. If the other driver is at fault, they and their insurance company will be responsible for repairing your damaged vehicle.

However, if you’re at fault, the responsibility will fall on you. If you don’t have collision coverage, you’ll need to decide if the vehicle is worth repairing and if so, how to pay for it. Common options include your income, emergency fund, savings, credit, or borrowing from a friend or family member.