Including collision insurance in your policy protects you from damages if you have a crash involving another vehicle or a stationary object. The coverage can save you money since you’ll receive reimbursement for the cost of repairs up to your policy’s limits after you pay your deductible.
If you’re still paying your car loan or leasing your vehicle, collision insurance offers a layer of protection. The same is true for an expensive sports car, which may cost more than a typical car to repair.
If you’re wondering when to drop collision insurance, you’ll want to consider the actual cash value of your car and your monthly budget. If the amount you pay for premiums is high and your car is cheap to repair or replace, canceling collision coverage may be a cost-effective decision.
Table of Contents
Collision insurance covers your car's repair costs if you crash with another vehicle or a stationary object.
Collision insurance allows reimbursement up to the actual cash value of your car.
Your car’s cash value can be an accurate indicator of whether you should drop collision insurance.
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What Is Collision Insurance?
Collision insurance is a type of coverage that helps you pay for vehicle repairs or replacements if you are in a crash with another vehicle or an inanimate object, like a fence or a tree.
Having this coverage can be advantageous, especially if you are involved in a crash. It helps you cover repair or replacement costs due to those scenarios. Lending institutions typically require collision coverage if you’re leasing your vehicle or if you’re paying off a car loan as a way to protect their asset.
Collision insurance may increase your insurance rates, but having a deductible of at least $500 can help reduce your expenses. Collision coverage typically goes hand-in-hand with comprehensive insurance, and most insurers offer them together as part of a full coverage policy.
In insurance, collision insurance covers collision incidents where a driver is at fault. Comprehensive insurance covers damages to your vehicle caused by non-collision incidents, like natural disasters, fire or theft.
Collision coverage or comprehensive coverage are not required by law.
When to Drop Collision Insurance
Knowing when to drop collision coverage insurance can help you protect your finances. Canceling collision insurance and getting cheaper car insurance may be the best direction to take in some situations, such as when you can afford to pay for repairs out of your pocket or if your car isn’t worth the cost to insure it.
Commons Reasons to Drop Collision Insurance
- Your collision premiums cost more than your car’s actual cash value.Cars depreciate as soon as you drive them off the lot. Knowing your car’s cash value is essential. For example, if it’s an older model and only worth $1,750, but you’re paying over $2,000 in premiums, you might consider dropping collision coverage.
- You can afford to pay out-of-pocket for damages out of pocket.Collision insurance helps you save money on repair costs after a crash. But if you can afford to pay for these costs out of pocket, collision coverage may not be necessary.
How much your car is worth today is known as its actual cash value (ACV).
To get your car’s AVC, subtract depreciation from its replacement cost. Kelly Blue Book can help you determine how much it’s depreciated.
Your ACV is affected by several factors. These include:
- Your car’s year, make and model
- Wear and tear
- Collision history
Knowing your car’s present value can play a significant role in deciding when to drop collision insurance coverage.
When Should You Keep Collision Insurance?
While collision insurance may raise your premiums by at least $500, there are scenarios where keeping the coverage can help lower expenses in the long run. These include when you own an expensive vehicle or if you’re still financing your car. Keeping collision insurance may be a good idea if you live in a state with a high percentage of uninsured motorists.
Common Reasons to Keep Collision Insurance
- You’re still paying for your car loan.Most lenders require you to carry full coverage car insurance if you’re still paying off your car loan. Collision insurance helps protect their assets if you are involved in a crash.
- You have an expensive car.High-value cars come with expensive repair costs if they’re damaged. If you can’t afford to pay for repairs out-of-pocket, it’s a good idea to carry collision coverage to protect your finances.
- You can’t afford a new car.If your car is damaged to the extent that it’s considered a total loss after a crash, having collision insurance may allow you to buy a replacement car worth the actual cash value of your totaled car.
- You only have one car.If you only have one car, you’ll want to get it repaired immediately after an accident. Collision insurance can save you from possible delays caused by having to find the money to fix your vehicle.
- You are concerned about getting hit by an uninsured driver.At-fault drivers are liable for the damage they cause in a collision, including medical bills and vehicle repair costs. But if a driver is uninsured, they have no insurance to cover your expenses. You may be stuck paying for repairs out of your pocket without collision insurance.
How to Save On Your Premium
If you decide collision insurance is a must, you will likely need to pay a higher premium. Fortunately, there are several other ways to save on insurance costs.
MoneyGeek lists five practical techniques you can use to reduce your car insurance premiums.
Raise your deductible.
Your deductible is how much you pay out of pocket before your insurance policy kicks in. You have several deductible options when purchasing a policy. In general, the higher your deductible, the lower your monthly premium.
Change your coverage and seek out discounts.
Different insurance companies will offer different rates to insure the same vehicle. Getting online quotes from multiple insurers can help you find lower premiums by comparison shopping.
Bundle your auto and home insurance.
If you carry a homeowners insurance policy, you may want to find out if your provider also offers car insurance. Most insurers offer a discount if you bundle car and home insurance together, which can help you save money in the long run.
Improve your credit score.
Insurers consider several factors when setting premiums. Your credit score is one of them. Drivers with good to excellent credit standing are offered significantly lower premiums than those with poor credit scores. Improving your credit score may take time, but it can significantly decrease your car insurance costs.
Take a defensive driving course.
Safe drivers usually pay lower car insurance premiums. Some insurers offer a discount if you voluntarily attend a defensive driving course. Check which traffic schools are approved by your insurance company and take a course through one of those to get the discount.
Pay in Full
Many insurance companies offer discounts if you pay upfront and in full. While no down payment car insurance will allow you to get the lowest upfront payment, in the long run you can ultimately save by paying in full.
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About Mark Fitzpatrick
- Kelley Blue Book. "What is 5-Year Cost to Own?." Accessed March 3, 2022.