When is the right time to drop collision coverage?
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Asked October 5, 2015
When deciding whether or not to keep your collision coverage, there are a number of factors that should be considered. These include:
- The Cash Value of Your Vehicle
One of the most important items to consider is your vehicle's cash value. Since a collision insurance payout will only compensate you for the value of the vehicle at the time of the collision, having an accurate idea of how much your vehicle is worth is a crucial stepping stone to determining whether the coverage is worth your time and money.
There are a number of resources that will provide you with the approximate value of your vehicle. The Kelley Blue Book is perhaps the most referenced of these resources, and will provide you with a close estimation of your vehicle's worth. When determining the worth of your vehicle, make sure to also consider any other items that may affect the total value, including any issues or damage to your vehicle, such as stained upholstery, dents, etc.
It's important to remember as well that the amount listed in the Kelley Blue Book may not be completely accurate in your case. Each insurance company is different and the company itself may be using a different means of determining the value of your vehicle. To be safe, give your insurance company a call to get a better idea of how they determine this number so that you won't be caught unawares in the event of a collision.
- The Premium You're Currently Paying for Coverage
After you've determined an approximate value for your vehicle, you'll then need to consider how much your collision coverage is costing you and how much the potential payout is in the event of a collision. While the cost of your collision coverage will likely decrease as your vehicle ages and depreciates, what you're paying still may not be worth it in the long run, especially when you consider the statistically unlikely odds of ever requiring a payout in the first place.
In most cases, keeping collision coverage that is costing you close or equal to the value of your vehicle simply isn't worth it. Paying month after month for this type of coverage when the payout in the event of a collision would be relatively insignificant often isn't prudent.
- Your Deductible
Again, this goes back to whether or not your collision coverage is actually providing you any financial benefit. Choosing a deductible is a tradeoff that everyone must consider. For example, choosing a higher deductible will likely lower your premium, while a lower deductible will often mean a higher premium.
In the event of a collision, think about whether the premium you pay throughout the year and the amount you would have to pay for a deductible is really worth it. You'll need to consider both the cash value of your vehicle as well as your personal financial situation. Is this really something that you can reasonably afford, and would the insurance company's payout realistically help you?
Answered October 5, 2015 by insguy