Collision coverage will pay to repair or replace your car in the event of an at-fault accident subject to your deductible. Collision coverage will also pay if your car is damaged when hit by an uninsured driver or underinsured driver. The purpose of this coverage is to protect your asset.
The typical reasons for buying this coverage are:
- Your vehicle is collateralized for a loan.
- Your vehicle is paid for but still has reasonable value.
- Your driving record suggests an accident that causes damage is likely.
Reasons to Drop Collision Coverage
A primary reason to drop collision coverage on your car is when it is no longer valuable to you. To determine the value of collision coverage, consider the value of your car versus the cost of your insurance. For example, if your car is not collateralized and has an actual cash value of $2,500, but your collision coverage cost $250 per six months or $500 per year, your cost of insurance is 20% of the value. You then add back your deductible which is likely $500, and your adjusted cost of insurance becomes 25%. Add to the mix that even the cheap car insurance in Texas usually increases year over year because finding car parts for older model vehicles becomes more expensive as they age.
Now that you’ve determined your cost for collision coverage, there are personal considerations you should think about.
- Can you afford to purchase a replacement vehicle if your car is a total loss after an at-fault accident or your car is totaled by an uninsured driver?
- Is it unlikely that you’ll be in an at-fault accident over the next few years?
- Do you drive your car less than the national average of 12,000 miles per year?
- Can you afford to lose your rental reimbursement coverage, which is usually not available unless you carry collision coverage? Remember, you’ll probably need to rent a car while you’re shopping for a replacement or your car is under repair.
If you answered “yes” to any of the questions mentioned above, it probably makes better sense not to carry collision coverage on your paid-for, older model vehicle.
Texas car insurance customers should keep in mind that many drivers who carry collision coverage are making this purchase based on the RISK that something may happen. Insurance is about a financial risk that an event may or may not happen and should be considered as such.
If your insurance rates are getting unaffordable, then it is likely time to shop your coverage or reduce the coverages you are paying for. Also, it’s important to note that increasing your deductible on an older vehicle adds to your cost of insurance rather than reducing it.
By using the example above for the $2,500 vehicle, your cost of insurance will typically be reduced from $250 per six months to $200 for a $1,000 deductible which translates to $400 per year. So then, if your $2,500 vehicle is totaled, you would receive only $1,500 in coverage. With insurance costs of $400 per year, your actual cost of insurance for the vehicle is increased to 27% or 2% more than the example used above.
Call Your Broker
If you are interested in reducing the cost of your car insurance by dropping the collision coverage, call your insurance broker and discuss the “what ifs” to determine if reducing coverage makes financial sense. A good broker will always put your needs before their commission, and do everything possible to satisfy you and maintain their relationship with you.