Cavan Images / Getty Images 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.
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 vehicleHitting an object, such as a fence, tree, or light poleRolling 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. 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. 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. 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. 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.
