Car Insurance Facts: When Collision Coverage Is Worth It

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When it comes to paying for damage to your own vehicle, the first line of defense against auto accidents is collision coverage. Many drivers are convinced they’ll never wreck their own vehicle, or that they’ll never be involved in an accident, but market research shows that the average driver in the U.S. will be involved in an accident once every ten years. Depending on your driving habits – say, if you go out late at night when drunk drivers are on the road, or if you drive and park in urban areas – you may be at higher risk. To be sure, if your vehicle is relatively new or worth more than a couple thousand dollars, you should pay to have it insured against the risk of an accident.

When it comes to paying for damage to your own vehicle, the first line of defense against auto accidents is collision coverage.

Only collision coverage pays for damage you cause to your own vehicle, but contrary to popular belief, you can also use it for accidents in which you were not at fault:

Three Ways Collision Coverage Serves You

  • Pays for damage to your vehicle when YOU cause an accident:
    • If you wreck your own vehicle, your insurer will pay for the cost to repair the vehicle, or if the cost to repair is more than the value of the vehicle, they will pay to replace it based on its market value at the time of the accident.
    • Pays for damage to your vehicle when ANOTHER DRIVER causes an accident:
      • Your insurer will pay your damages and then go seek reimbursement from the other driver’s insurance.
      • Many drivers take advantage of this option when the at-fault driver’s insurer is being difficult or slow to act. You will typically have to demand your insurer take action in this scenario, but if you paid for collision coverage, you have these benefits.
      • Using this option should not raise your rates, since you were not at fault. Be sure to ask your insurance adjuster whether a scenario will or won’t affect your rates before choosing your course of action.
    • Pays for damage to your vehicle in circumstances not covered by other sections of your policy:
      • If you do not purchase comprehensive coverage for vandalism, acts of nature, theft, etc., then you can typically claim such losses under collision coverage.
      • For hit-and-run accidents or damage caused by a driver with no insurance, you can typically claim such losses under collision coverage.
      • Using collision coverage in these scenarios may raise your rates, as your insurer may assess such damage as if you were at fault or caused it yourself. This is why it’s best to carry comprehensive (COMP) and underinsured motorist (UIM) to pay for damage in any scenario.

Adding collision insurance coverage to your auto policy will of course increase the cost of your monthly premium, however the amount of increase will vary greatly from driver to driver, depending on several factors. According to the Insurance Information Institute, certain factors affect the cost of a driver’s insurance premiums. Such factors include level of education, income, age, gender, credit score, driving habits, driving history, geographical location, and the vehicle you drive. Gathering quotes from multiple insurers is the best way to know what your premiums will cost and where you might get the best deal; just make sure you’re comparing equal coverage and policy limits when getting quotes from different insurers.

 

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Most insurers will offer slight discounts to drivers who buy multiple forms of coverage at once, such as comprehensive, underinsured motorist, rental, and personal injury protection on their auto policy; additional discounts may be offered for those who buy homeowners, motorcycle, boat, RV, or other forms of insurance coverage from the same insurer. Generally speaking, these can be qualified as “spend more to save more” discounts; drivers on a budget shouldn’t consider buying extra coverage as a means to save money. On the other hand, going without insurance coverage (specifically collision) will likely leave you with a large out of pocket expense in the event you wreck your vehicle.

Most insurers will offer slight discounts to drivers who buy multiple forms of coverage at once…drivers on a budget shouldn’t consider buying extra coverage as a means to save money

Beyond the aforementioned benefits of collision coverage, there are a handful of very important factors to keep in mind when considering when to drop collision insurance coverage, or when collision insurance is worth it for your car.

Factors to Consider When Choosing Whether or Not to Pay For Collision Coverage

  • Your Vehicle’s Value
    • If you drive a vehicle that’s only worth a few thousand dollars or less, it might make sense to pay for any accident damage out of pocket instead of paying your insurer.
    • For expensive vehicles with values over $5,000 or $10,000, it’s a good idea to pay for collision coverage.
    • If you have a loan on your vehicle, many lenders will require you have collision coverage on your auto policy. However, some states and some lenders don’t always require collision coverage. Without collision insurance, in the event you damage or total the vehicle, you’ll be left paying the full value of a loan with no way to recoup much of the money from the vehicle, which, in its damaged state, is worth a fraction of its pre-accident value.
    • Over the course of four or five years (or less), you might end up paying your insurer more than your vehicle’s value.
  • Depreciation In Value of Your Vehicle Over Time
    • If your vehicle is worth roughly $10,000 today, you can expect that in five years it might be worth anywhere from $7,000 to $3,000, or less. You might consider dropping collision coverage in a few years if you can expect your vehicle won’t be worth more than a few thousand in that time.
  • Your Risk of An Accident
    • If you only drive your vehicle infrequently or driver fewer than a few thousand miles per year, your risk of an accident may be relatively low.
    • If you drive everyday, and if you drive and park in urban areas, you may be at higher risk of an accident.

You can do some basic math as to whether collision coverage is financially viable by following these steps:

  • Research your vehicle’s current value by searching for comparable models on craigslist, ebay motors, autotrader.com, kbb.com, nada.com, or other websites for shopping for vehicles.
  • Calculate your current rates for collision coverage or get quotes for collision coverage to know what your expected yearly premium will be.
  • If, over the course of three to five years, the total of your yearly premiums will equal or exceed your vehicle’s value, you should consider cancelling your collision coverage.
  • Instead of paying your insurer on a monthly basis for collision coverage, you should instead set aside a similar amount for an emergency vehicle fund, which you can use for emergency repairs or for maintenance.

If you have enough money in your savings account to pay for your vehicle’s value at a moment’s notice, you should consider dropping collision coverage and reap the savings while you drive without an accident. In the event you cause damage to your own car, just know that you’ve worked it into your budget to pay for it. If the damage is minimal or simply cosmetic, and your vehicle has a relatively low value, it may be worth it to simply live with the damage instead of making costly repairs.

If you have enough money in your savings account to pay for your vehicle’s value at a moment’s notice, you should consider dropping collision coverage and reap the savings while you drive without an accident

At the end of the day, many factors should weigh into your decision as to whether to keep collision coverage on your policy or not. If you’re not absolutely sure that you could deal with paying for repairs or completely replacing your vehicle at a moment’s notice, or else going without a vehicle until you could save for a replacement, it’s best to err on the side of caution and pay the extra premium for collision coverage.

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