Should You Have Collision Coverage?
And when is the money better spent elsewhere?
We all do our best to avoid collisions, but sometimes we fall victim to circumstances beyond our control. Damage from a collision could range from a few minor dings or scratches all the way up to irreparably crumpled body panels. Collision coverage will help you get the damage repaired or even replaced if necessary.
What is Covered by Collision Insurance?
Collision insurance obviously covers accidents with other vehicles, but many people are unaware that it will also apply to run-ins with objects like trees or signs. Specifically, collision insurance covers:
- Auto body damage resulting from a collision with another vehicle, regardless of fault
- Auto body damage resulting from a collision with stationary objects, such as a tree or sign
- Auto body damage resulting from a single-vehicle accident such as a rollover
While collision insurance does cover a wide range of damage, keep in mind that it doesn’t cover everything. Collision insurance won’t cover damage to another party’s vehicle, medical bills, or damage to your vehicle that has not resulted from a collision (such as hail or burglars breaking in).
What Deductible Should I Choose?
The deductible is the amount that you pay out-of-pocket before any insurance coverage will take effect. So, if you had a policy with a $1000 deductible, you would have to pay $1000 before the insurance kicks in to cover the rest. A deductible is a very personal choice, as you must take into account many factors when selecting a deductible to get the best one.
Monthly Cost or Premium
Generally, the higher the deductible, the lower the monthly cost for the policy. Various insurance agencies will offer different combinations of deductible and premium, so it’s important to get quotes from many institutions so you can make a fully informed decision. Selecting the policy with the lowest premium is certainly tempting, the monthly cost should not be the only criteria driving your decision.
Level of Risk
You must also assess your personal risk level, including situations such as:
- Prevailing weather conditions in your area
- The time of day you tend to drive your vehicle
- Likelihood of encountering unexpected wildlife
Questions like these will give you an idea of how often you may have to use your policy. If you think you have a reasonable chance of using your policy multiple times per year (perhaps you live in an icy area, usually drive at night, and there are lots of deer), you would probably be better served by a policy with a lower deductible even if that means a higher premium.
Higher deductible policies make sense if you drive seldomly, generally experience good road conditions, and live in a low-risk environment with little traffic and objective hazards. Although this advice is quite general, it gives you an idea of what questions to ask yourself during your selection process.
Do I Need Coverage for My Old Car?
The value of your vehicle plays a role in deciding whether or not you need collision coverage. Insurance companies will only pay fair market value for damage to a vehicle, so if you are driving an old beater, it may be worth it to just forego collision insurance altogether.
When Should I Drop Collision Coverage?
Collision insurance is normally a requirement if you are financing or leasing your vehicle. However, if you own it outright, the decision is up to you. As a rule of thumb, once your car hits its 10th birthday, it may be worth foregoing collision insurance.
Of course, this decision isn’t as simple as that rule of thumb. You should consider the make and model of your vehicle, as some vehicles hold their value better than others. Keep an eye on the book value of your car and know that the ten-year mark is a good time to start thinking about whether or not collision coverage is worth it.
Also, consider your financial situation and the importance of your vehicle. If you have a small amount of savings and absolutely need your vehicle, collision coverage could save you from losing your vehicle and winding up in a tight spot. Although, keep in mind that the payout on a car with little value might not be enough to buy a new vehicle.
However, if you have an emergency find, a second vehicle, or are happy to exist without a car for a while, removing your coverage and putting the money to work elsewhere might be the best call. Thoughts or questions about collision insurance? We’d love to hear about it in the comments below, or always feel free to give us a shout.