When to Drop Collision Coverage on Your Auto Insurance


People are always looking for ways to save money on their car insurance, and one of the most common savings is to drop collision coverage once the car is paid off. Most lenders require a driver to have collision coverage on a vehicle while it still has a lien on it so the vehicle can be completely repaired if there is an accident. Removing that coverage when the lien is lifted sounds like a decent strategy, but it is not always the right answer.

The Value Of The Vehicle

Most car loans run 60 months, which means that the car has only been on the road for five years when the loan is paid up. While a brand new car can depreciate considerably in the first year, that does not mean that it depreciates so much in five years that it should not be repaired if damaged. If your car is still worth $20,000.00 or more after you have paid the loan off, then you need to protect that investment by keeping the collision coverage in place.

Raising The Deductible

When you first bought your 2013 vehicle brand new, you were able to get a monthly insurance rate of $700.00. This included collision and a deductible of $250.00. In 2018, you have maintained a good driving record and your insurance is $625.00 per month, with $270.00 of that being collision. You are considering removing collision, but the vehicle is still worth a decent value.

Instead of removing collision, you should raise your deductible. By raising your deductible to $500.00, you would see your premium drop to $500.00 per month. After four months, you would have saved the $500.00 deductible, and you will keep on saving all year round.

Time To Drop Collision

If you are paying more to keep collision on your car than the car is worth, then it is time to drop your collision coverage. For example, if you could save $250.00 per month by dropping collision and your vehicle is only worth, $2,000.00, then it does not make sense to keep paying that extra money for a vehicle that is not worth the cost of your extra premiums.

You should also ask your insurance company what it considers to be the totalled value of your car. If the return on totalling your car after an accident is less than the combined amount of premiums you pay with collision, then it is time to drop collision coverage.

Many people look forward to the day when they can drop collision coverage after their vehicle is paid off. But people forget that collision coverage is there to help you retain the financial investment that you have in your vehicle. If you drop collision while it can still help you to maintain your investment, then you could wind up losing a lot of money if you get into an accident.